<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 33-94420
RXI HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-44426626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11111 SANTA MONICA BLVD., LOS ANGELES, CALIFORNIA 90025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 473-7005
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes NO X
--- ---
As of September 30, 1996, there were 4,945,500 shares of the Registrant's
Common Stock outstanding.
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The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about their business without
fear of litigation so long as their statements are identified as
forward-looking and are accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in such statements.
This Annual Report on Form 10-K contains statements about the Company's
projected financial results and its future plans and strategies. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially from those included in
the forward-looking statements made herein. Among the factors that could
cause actual results to differ materially are the following: the availability
of sufficient capital to finance the Company's business plans on terms
satisfactory to the Company; competitive factors such as the introduction of
new product lines or production methods in the same markets; changes in
development and operating costs, including costs of resources, labor and
shipping; risks associated with debt financing, including the Company's
ability to meet required payments of principal and interest; general business
and economic conditions; and other risk factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission.
Item 1. Business
BUSINESS
RXI Holdings, Inc ("Holdings") and its operating subsidiary, RXI
Plastics, Inc. ("Plastics") (collectively the "Company") manufacture rigid
plastic containers, closures and fitments for the food, household chemical,
agricultural and specialty chemicals, pet supply, personal care and
pharmaceutical and automotive markets. The Company maintains manufacturing
facilities in Texas, Ohio, West Virginia, Indiana, Missouri and California.
As of June 1, 1996, the Company sold the distribution operations which
accounted for approximately $28 million of the Company's revenues for the
year ended June 30, 1996. For the year ended June 30, 1996, the Company
generated actual revenues and earnings before income taxes, interest expense,
amortization of deferred loan costs, and depreciation and amortization
expense ("EBITDA") of $94 million and $5.8 million, respectively.
The Company manufactures a wide variety of plastic containers in sizes
ranging from less than 1 ounce to over 2.5 gallons and a wide range of
closures and fitments, in total representing over 3,800 stock keeping units
("SKUs"). The Company's products include innovative container designs such as
the BETTIX-Registered Trademark- bottle, a container with a patented
self-contained measuring device that dispenses liquids in precise dosages, as
well as a patented cap/sifter assembly that is used primarily in the
packaging of spices. The Company also manufactures multi-purpose containers
and closures for packaging products, including edible oils, spices, liquid
cleaners, cat litter, fertilizers, cosmetics, personal care items, medicines
and automotive additives.
Management believes the Company's relationships with its customers are
both strong and long-standing. Approximately 73% of the Company's pro-forma
manufacturing revenues for the fiscal year ended June 30, 1996 were generated
from customers who have been served by the Company for at least five years.
During the last ten years, the rigid plastic container market grew faster
than the overall container market in the United States, primarily as a result of
the substitution of plastic containers for glass, metal or paper in many
applications. Management believes the demand for plastic containers will
continue to increase as new applications and resin compounds are developed, and
as consumer product companies increasingly take advantage of plastic's special
characteristics that allow it to be molded into innovative designs, unique
shapes and in a wide range of colors. The Company's primary business objective
is to continue its revenue growth trends and to improve its operating
profitability. Key components of management's strategy include (i) the
continued expansion of strong customer relationships, (ii) continued realization
of improvements in productivity, and (iii) the pursuit of growth opportunities
such as expanding sales of BETTIX-Registered Trademark- bottles, manufacturing
other innovative application-specific containers and pursuing selected long-term
partnering opportunities and acquisitions.
HISTORY
Holdings, a Delaware corporation, was formed in April 1993 to acquire
regional plastic container manufacturers throughout the United States and
consolidate them into a larger, more competitive entity that would be in a
position to service larger customers across multiple markets. In the fourth
quarter of fiscal 1996, the Company reorganized its wholly-owned
subsidiaries, Texberry Container Corporation ("Texberry") and Patrick
Plastics, Inc. ("Patrick"), transferring Texberry's manufacturing operations
to, and merging Patrick with, Continental Plastics Incorporated
("Continental") which had been renamed RXI Plastics, Inc. The Company
subsequently sold Texberry, which comprised the remaining distribution
operations, to an unrelated third-party for $11.25 million, receiving $1.624
million in cash, $7.380 million through assumption of debt and liabilities,
and a deferred payment obligation of $2.25 million, payable in five (5) years
and bearing interest at a rate of 10% per annum payable quarterly. In
addition, at closing, $2.628 million was placed in an escrow account, the
disposition of which is contingent on the buyer achieving certain operating
results over the one year period following closing. The escrow funds are not
included as a part of the sales price.
In May 1996, the Company acquired the plastic bottle business and related
assets of Vanguard Plastics of California, Inc. ("Vanguard") at an aggregate
cost of approximately $1.376 million, including the assumption of certain
liabilities. The acquisition was accounted for as a purchase. Subsequent to
the acquisition, Vanguard was merged into Plastics.
PRODUCTS AND CUSTOMERS
The Company provides its customers with a wide variety of products and
services. The Company's operations utilize four primary processes (i)
extrusion blow molding, (ii) injection molding, (iii) injection-blow molding,
and (iv) stretch blow molding using high density polyethylene ("HDPE," the
principal resin used by the Company), polyvinyl chloride ("PVC"),
polypropylene, low-and medium-density polyethylene, polyethylene teraphtalate
("PET") preforms, and recycled materials.
The table below summarizes the major end markets currently served by the
Company based on pro-forma manufacturing sales, assuming the acquisition of
Vanguard occurred on July 1, 1995, for the fiscal year ended June 30, 1996.
LAST FISCAL YEAR
END MARKET NET SALES (%)
---------- -----------------
Food 34%
Household Chemical 19%
Agricultural & Specialty Chemical 13%
Pet Supply 12%
Personal Care & Pharmaceuticals 8%
Automotive 5%
Other 9%
FOOD. The food industry constitutes a vast market for the rigid plastic
packaging industry but is generally characterized by relatively low margin,
common-design containers (bottles, tubs and caps). The Company has found
selected niche areas of this market and, in dollar sales volume, food containers
and closures represent its largest single customer market. The Company
manufactures PET bottles that offer the clear, clean look of glass in a non-
breakable, light-weight, recyclable product for salad oils. It produces
special-shaped honey and syrup bottles for regional food producers and jam/jelly
and mustard bottles for a national food packager/distributor. The Company
supplies the dried spice industry with bottles, custom closures (generally with
a sifter or perforated inner lid to assist the consumer in shaking and
dispensing the spice contents). The Company also makes very small (1/4 ounce)
bottles with droplet-dispensing caps for food coloring and flavorings.
HOUSEHOLD CHEMICAL. The household chemical industry is characterized by
customers that look for reasonable price, high quality and fast order response.
These requirements generally result in a stable customer base for plastic bottle
manufacturers who typically tailor production to the customers' specifications.
The Company sells a variety of bottles ranging from quart to multi-gallon sizes,
with and without built-in handles. These bottles are generally used for floor
cleaners and waxes and bathroom/kitchen cleansers. The Company also provides
caps and nozzles for dispensing glues and lubricants from tubes or bottles.
AGRICULTURAL AND SPECIALTY CHEMICALS. The agricultural and specialty
chemicals industry requires non-breakable, leak-proof plastic bottles that are
often specially-treated to create a better air barrier and to improve chemical
resistance. The major companies in this market, who are among the largest
chemical producers in the world, seek long-term relationships with container
manufacturers to provide excellent service, high quality and fast order
response. Management believes an industry trend has been to require bottle
manufacturers to provide "value-added" services such as special labeling and
repeat leak testing (after post-molding chemical treatments have been applied to
the bottles). For this level of service, customers in this industry have
historically been willing to pay a premium.
PET SUPPLY. The Company developed a new packaging concept for a customer in
1992 that management believes complements the unique characteristics of the
customer's new "clumping cat litter," augmenting the convenience of use and
neatness of dispensing the product. This new product line now represents a
significant share of the Company's manufacturing business and the Company has
established a long-term requirements contract with one of the major cat litter
producers in the United States.
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PERSONAL CARE AND PHARMACEUTICAL. The personal care and pharmaceutical
market utilizes large quantities of plastic bottles for medicines, shampoos,
antiseptic cleaners and other personal care products. This industry uses the
containers for its products as a major marketing tool and frequently changes
its specifications for bottle shapes, colors, labeling, closure design or
other design features to make the products stand out on retail shelves. The
Company, with its in-house design capabilities, provides this industry with
marketing and product design assistance.
AUTOMOTIVE. The automotive after-market is another large market for rigid
plastic containers and caps/closures. The Company provides containers for
radiator leak sealant, and custom-designed BETTIX-Registered Trademark-
bottles that dispense precise amounts of oil to be added to fuel in two-cycle
engines, one-gallon HDPE bottles for windshield washer solvent and
antifreeze, and plastic quart bottles for engine oil. Other than the
BETTIX-Registered Trademark-bottles, these are generally multi-purpose
"standard" type products that the Company, by virtue of its high-efficiency
low-cost manufacturing operation, offers at very competitive prices.
OTHER. The "other" category includes a variety of industries and market
niches. The arts-and-crafts industry is an example of a niche industry that has
been served by the Company for many years. The Company has developed a number
of unique bottles and dispenser product designs for glues, inks, dyes, and
paints. Historically, packaging for the arts-and-crafts industry has generated
above-average profit margins.
The Company manufactures over 2,000 different styles and colors of plastic
containers in sizes ranging from less than one ounce to over 2.5 gallons,
plastic bottles, plastic sifter fitments, dispensing fitments, nozzles, closures
and specialty items custom manufactured to certain design specifications. The
Company's product line exceeds 3,800 SKUs.
The Company is also the exclusive U.S. licensee for the BETTIX-Registered
Trademark- bottle until 2000. The BETTIX-Registered Trademark- line of
bottles have a patented self-contained measuring and dispensing chamber
(which fills through a blow molded tube on one side of the container) that
eliminates the need for a separate measuring device. Based on current
applications, BETTIX-Registered Trademark- containers are produced in 36
variations, and 14 stock sizes, ranging from four ounces to 64 ounces. The
Company also emphasizes its own product research and development and owns 23
U.S. patents and has applications for patents pending for four additional
products. One of these recently patented products is a bottle cap/sifter
fitment assembly that can be assembled in one step rather than in two
separate processes. The Company uses its research and development expertise
to meet special packaging requirements of customers, using computer-aided
design stations to develop and manufacture custom packaging.
The Company's products are sold nationally with an emphasis on territories
within a 350-mile radius of its manufacturing facilities.
The Company's major customers include Golden Cat (a Ralston-Purina
company), Dupont, Pine-O-Pine, Lime-O-Sol, Spartan Chemical, Canberra, Betco,
T. J. Lipton, McCormick & Co., Krazy Glue, Zeneca AG Products, Kroger Company
and Duncan Enterprises.
Item 2. PROPERTIES
The Company operates out of more than one million square feet at the
following locations:
SQUARE FEET OWN/LEASE
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Headquarters and Principal Executive Offices
Los Angeles, CA 3,000 Leased
BETTIX-Registered Trademark- Sales Office
Tempe, AZ 500 Leased
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SQUARE FEET OWN/LEASE
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Offices, Manufacturing Plant and
Warehouse Facility
Houston, TX 326,100 Owned
Warehouse Facility
Houston, TX 57,500 Leased
Manufacturing Plant
Cape Girardeau, MO 70,300 Leased
Offices and Manufacturing Plant
Ottawa, OH 45,000 Leased
Warehouse Facility
Leipsic, OH 237,800 Leased
Manufacturing Plant and
Warehouse Facility
Argos, IN 125,000 Owned
Offices, Manufacturing Plant and
Warehouse Facility
Triadelphia, WV 120,000 Owned
Warehouse Facility
Benwood, OH 35,000 Leased
Offices and Warehouse Facility
Los Angeles, CA 30,000 Leased
Manufacturing Plant
Los Angeles, CA 29,500 Leased
The lease for the warehouse facility in Benwood, OH, is on a
month-to-month basis. Otherwise, the earliest lease termination date is
September 1997 for the Los Angeles manufacturing plant. The leases for
manufacturing plants each contain provisions allowing the Company the option
to renew the lease for two additional five-year periods, although the renewal
of the Cape Girardeau, MO, lease is subject to certain conditions precedent.
The Company also has options to purchase the facilities located in Ottawa,
OH, Leipsic, OH and the warehouse facility in Houston, TX. The Company
believes that its property and equipment are well maintained, in good
operating condition and are adequate for its present needs.
Item 3. Legal Proceedings
From time to time, the Company may become party to various legal
proceedings involving routine claims which are incidental to its business. The
legal and financial liability of the Company with respect to such matters cannot
be estimated at the present time, but the Company does not expect that such
matters would have a material adverse effect on the financial condition or
results of operation of the Company taken as a whole.
Item 4. Submission of Matters to a Vote of Security-Holders
None
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is not listed on any national exchange and
currently no established public trading market exists for the Common Stock.
Item 6. Selected Financial Data
SELECTED HISTORICAL FINANCIAL DATA OF
RXI HOLDINGS, INC. AND SUBSIDIARY[IES]
The following selected historical consolidated financial data should be
read in conjunction with the consolidated financial statements and related
notes of "RXI Holdings, Inc. and Subsidiary(ies)" and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
the years ended June 30, 1995 and 1996, included elsewhere herein. The
selected historical consolidated balance sheet data presented below as of
June 16, 1993, June 30, 1993 and 1994 and the selected historical
consolidated statement of operations data presented below for the period from
August 1, 1992 through June 16, 1993, and for the period from the date of
inception (April 22, 1993) through June 30, 1993 are derived from the
consolidated financial statements of the Company and Texberry (predecessor of
the Company), which financial statements have been audited by Deloitte &
Touche LLP, independent auditors, and are not included herein. The selected
historical consolidated balance sheet data presented below as of June 30,
1995 and 1996 and the selected historical consolidated statement of
operations data presented below for the years ended June 30, 1994, 1995 and
1996 are derived from the consolidated financial statements of the Company
included elsewhere herein, which financial statements have been audited by
Deloitte & Touche LLP, independent auditors. The selected historical balance
sheet data presented below as of July 31, 1992 and the consolidated statement
of operations data presented below for the year ended July 31, 1992 are
derived from financial statements of Texberry audited by other auditors not
included herein.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY RXI HOLDINGS, INC. AND SUBSIDIARY[IES]
------------------------- ---------------------------------------------
PERIOD
PERIOD FROM
FROM INCEPTION
AUGUST 1, (APRIL 22,
1992 1993)
YEAR ENDED THROUGH THROUGH
JULY 31, JUNE 16, JUNE 30, YEAR ENDED JUNE 30,
-------- -------- -------- --------------------------------
1992 1993 1993(a) 1994(b) 1995(c) 1996(d)
-------- -------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . . . . . . . $ 49,357 $ 44,602 $ 2,042 $ 55,052 $ 86,779 93,963
Cost of sales . . . . . . . . . . . . . . . . . 37,666 34,755 1,560 41,678 66,756 74,768
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . 11,691 9,847 482 13,374 20,023 19,195
Operating expenses . . . . . . . . . . . . . . . 8,397 7,652 664 9,877 19,338 17,725
-------- -------- -------- -------- -------- --------
Income (loss) from operations. . . . . . . . . . 3,294 2,195 (182) 3,497 685 1,470
Interest expense . . . . . . . . . . . . . . . . 870 542 77 2,736 7,284 10,662
Reorganization costs . . . . . . . . . . . . . . 2,278
Other expense (income) . . . . . . . . . . . . . (41) (58) (2) 50 (102) 105
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes. . . . . . . . 2,465 1,711 (257) 711 (6,497) (11,575)
Provision (benefit) for income taxes . . . . . . 885 532 (100) 388 (1,877) (1,598)
-------- -------- -------- -------- -------- --------
Income (loss) before minority interest . . . . . 1,580 1,179 (157) 323 (4,620) (9,977)
Minority interest. . . . . . . . . . . . . . . . -- -- -- 7 10 --
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item. . . . . 1,580 1,179 (157) 316 (4,630) (9,977)
Extraordinary item, net. . . . . . . . . . . . . -- -- -- -- (2,943) --
-------- -------- -------- -------- -------- --------
Net income (loss). . . . . . . . . . . . . . . . $ 1,580 $ 1,179 $ (157) $ 316 $ (7,573) $ (9,977)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital. . . . . . . . . . . . . . . . . $ 3,590 $ 2,498 $ 902 $ 306 $ 3,663 $ (2,966)
Total assets . . . . . . . . . . . . . . . . . . 18,416 17,351 32,329 60,684 99,745 87,914
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total debt and redeemable
stock and warrants(e). . . . . . . . . . . . . 8,247 6,757 20,615 40,930 72,562 74,740
Total shareholders' equity (deficiency). . . . . 4,940 5,619 4,231 8,943 6,754 (3,483)(f)
OTHER DATA:
Net cash provided by (used in)
operating activities . . . . . . . . . . . . . $ 3,068 $ 2,995 $ 1,156 $ 2,670 $ (1,486) $ 2,399
Net cash used in investing activities. . . . . . (1,007) (488) (16,504) (21,486) (31,086) (6,243)
Net cash used in (provided by)
financing activities . . . . . . . . . . . . . (1,593) (2,122) 17,060 18,029 31,771 3,745
EBITDA(g) . . .. . . . . . . . . . . . . . . . . 5,216 3,585 (137) 5,108 7,413 5,786
Depreciation and amortization. . . . . . . . . . $ 1,881 $ 1,332 $ 43 $ 1,668 $ 6,636 $ 6,699
Amortization of deferred loan costs. . . . . . . -- -- 20 333 665 850
Net interest expense . . . . . . . . . . . . . . 870 542 57 2,403 6,619 9,812
Capital expenditures . . . . . . . . . . . . . . 1,027 498 17 4,115 9,024 7,093
Ratio of earnings to fixed charges(h). . . . . . 3.15x 3.21x NM 1.25x .16x NM(i)
Ratio of EBITDA to net interest
expense(j) . . . . . . . . . . . . . . . . . . 6.00 6.61 NM 2.13 1.12 NM
</TABLE>
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(a) The Company was incorporated on April 22, 1993 and acquired Texberry on
June 16, 1993. Prior to its acquisition of Texberry, the Company had no
significant activities or operations. Texberry's operating results are
included only from its acquisition date through June 30, 1993, the
Company's fiscal year end. Since Texberry's fiscal year end was changed
from July 31 to June 30, its operating results for the month of July 1993
are included in the Company's 1994 fiscal year.
(b) Reflects one full fiscal year of Texberry's operating results and 49 days
of Patrick's operating results, since Patrick was acquired on May 12, 1994.
As a result of the Patrick acquisition and the change in fiscal year, these
results are not directly comparable to those of the predecessor company.
(c) Reflects the full fiscal year of Texberry's and Patrick's operating
results, and 140 days of Continental's operating results, since Continental
was acquired on February 10, 1995. As a result of the Continental
acquisition, these results are not directly comparable to those for the
full fiscal year ended June 30, 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a
comparison of fiscal periods.
(d) Reflects the full fiscal year of Texberry's manufacturing, Patrick's and
Continental's results, eleven months of Texberry's distribution and 53 days
of Vanguard's operating results, since Texberry's distribution business was
sold on May 31, 1996 and Vanguard was acquired on May 9, 1996. As a result
of the sale and the acquisition, these results are not directly comparable
to those for the full fiscal year ended June 30, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations:"
for a comparison of fiscal periods.
(e) Total debt includes long-term debt, current maturities of long-term debt
and short-term debt.
(f) Shareholders' equity is comprised of $11.9 million of preferred stock, $1.3
million of common stock and $1.6 million of warrants, less $18.3 million of
accumulated deficit.
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(g) "EBITDA" represents the sum of income before taxes, interest expense,
amortization of deferred loan costs, and depreciation and amortization
expense. EBITDA is presented here to provide additional information about
the Company's ability to meet its future debt service, capital expenditure,
and working capital requirements. However, EBITDA should not be considered
as an alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles), should not be construed as an indication of a company's
operating performance or as a measure of liquidity and does not represent
cash available to fund all cash flow needs. EBITDA is derived as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
(DOLLARS IN THOUSANDS)
1995 1996
---- ----
<S> <C> <C>
Loss before income taxes, less minority interest(*) . . $(6,507) $ (11,575)
Depreciation and amortization . . . . . . . . . . . . . 6,636 6,699
Amortization of deferred loan costs . . . . . . . . . . 665 850
Net interest expense. . . . . . . . . . . . . . . . . . 6,619 9,812
------- ---------
EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . $ 7,413 $ 5,786
------- ---------
------- ---------
</TABLE>
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(*) Earnings before taxes is presented net of minority interest
of $10,000 for the year ended June 30, 1995.
(h) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs,
whether expensed or capitalized, but excludes the extraordinary item
recorded in the year ended June 30, 1995), plus one-third of rental
expenses, representative of that portion of rental expense attributable to
interest.
(i) In 1996, earnings are inadequate to cover fixed charges. The coverage
deficiency is $0.4 million.
(j) The ratio of EBITDA to cash interest expense is provided to demonstrate the
Company's coverage of its interest expense excluding amortization of
deferred loan costs, which is also a component of interest expense. The
ratio of EBITDA to cash interest expense is not an alternative to the Ratio
of Earnings to Fixed Charges presented herein in accordance with Regulation
S-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RXI HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARY[IES]
The following table sets forth, for the periods indicated, summary statement
of operations data:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1994 1995 1996
---------------------- ---------------------- ---------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $ 55,052 100.0% $ 86,779 100.0% $ 93,963 100.0%
Cost of sales. . . . . . . . . . . . . . . . 41,678 75.7 66,756 76.9 74,768 79.6
-------- ---- -------- ---- -------- ----
Gross profit . . . . . . . . . . . . . . . . 13,374 24.3 20,023 23.1 19,195 20.4
Operating expenses . . . . . . . . . . . . . 9,877 17.9 19,338 22.3 17,725 18.9
-------- ---- -------- ---- -------- ----
Income from operations . . . . . . . . . . . 3,497 6.4 685 0.8 1,470 1.5
Interest expense . . . . . . . . . . . . . . 2,736 5.0 7,284 8.4 10,662 11.3
Reorganization costs . . . . . . . . . . . . 2,278 2.4
Other expense (income) . . . . . . . . . . . 50 0.1 (102) (0.1) 105 0.1
-------- ---- -------- ---- -------- ----
Income (loss) before income taxes. . . . . . 711 1.3 (6,497) (7.5) (11,575) (12.3)
Provision (benefit) for income
taxes . . . . . . . . . . . . . . . . . . . 388 0.7 (1,877) (2.2) (1,598) (1.7)
-------- ---- -------- ---- -------- ----
Income (loss) before minority
interest. . . . . . . . . . . . . . . . . . 323 0.6 (4,620) (5.3) (9,977) (10.6)
Minority interest. . . . . . . . . . . . . . 7 -- 10 -- -- --
-------- ---- -------- ---- -------- ----
Income (loss) before extraordinary item. . . 316 0.6 (4,630) (5.3) (9,977) (10.6)
Extraordinary item, net. . . . . . . . . . . -- -- (2,943) (3.4)
-------- ---- -------- ---- -------- ----
Net income (loss). . . . . . . . . . . . . . $ 316 0.6% $ (7,573) (8.7)% $ (9,977) (10.6)%
-------- ---- -------- ---- -------- ----
-------- ---- -------- ---- -------- ----
EBITDA . . . . . . . . . . . . . . . . . . . $ 5,108 9.3% $ 7,443 8.6% $ 5,786 6.2%
</TABLE>
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<PAGE>
YEAR ENDED JUNE 30, 1996 COMPARED WITH THE YEAR ENDED JUNE 30, 1995
Due to the acquisitions of Continental in February 1995 and Vanguard in
May 1996, and the disposition of the Company's distribution operations
effective June 1, 1996, 140 days of Continental's operating results are
included in 1995, 11 months of the distribution operations and 53 days of
Vanguard's operations are included in 1996. As a consequence of these
transactions, the results for the year ended June 30, 1996 are not directly
comparable to the results for the year ended June 30, 1995.
NET SALES. Net sales of $94.0 million for the year ended June 30, 1996
increased $7.2 million from net sales of $86.8 million for the year ended
June 30, 1995. The increase reflects the inclusion of $10.1 million of net
sales of Continental for the period July 1, 1995 through February 9, 1996,
and $1.8 million of net sales of Vanguard for the period May 9, 1996 through
June 30, 1996. In addition, 1995 includes $2.9 million of net sales, for the
month of June 1995, related to the Company's distribution operations, which
are not in the comparable 1996 results. Excluding the effect of the
acquisitions and the disposition, sales decreased $1.8 million from 1995 to
1996, due to a combination of lower sales volumes and lower selling prices.
GROSS PROFIT. Gross profit of $19.2 million in 1996 decreased $0.8
million from $20.0 million in 1995. The results of Continental and Vanguard
provided additional gross profit of $3.4 million and $0.3 million,
respectively, in 1996 due to the timing of the acquisitions. Excluding the
results of Continental and Vanguard, gross profit decreased $4.5 million from
1995 to 1996. This decrease was primarily the result of lower production
levels in 1996 as compared with 1995 and lower gross profit provided by the
Company's distribution activities.
The Company's manufacturing unit volume was down approximately 8% from 1995 to
1996. Manufacturing volume during 1996 was lower than in 1995 due to softer
demand for manufactured plastic products and a planned reduction in the
Company's finished good inventories, in each case, in anticipation of lower
resin prices. The lower production volume resulted in a higher level of fixed
costs allocated to each item produced and, when the related products were sold,
a lower gross profit realized. This had a $1.5 million unfavorable impact on
the Company's gross profit.
Gross profit provided by the Company's distribution activities was lower in
1996 compared to 1995 as a result of lower selling prices ($1.3 million), and
as a result of lower unit volume ($0.7 million). The lower selling prices
reflect continued competitive pressures felt by the Company during 1996 and
management's decision to meet its competitors' prices at lower margins in
certain markets. In addition, gross profit was adversely impacted by higher
fixed costs, primarily consisting of depreciation and operating leases ($0.4
million), higher freight costs ($0.2 million), and costs related to bringing
the Company's Argos, IN facility operational ($0.4 million).
Gross margin has deteriorated from 23.1% of sales in 1995 to 20.4% of sales
in the 1996 period, which included the results of Continental and Vanguard.
Excluding Continental and Vanguard, gross margin has deteriorated to 16.5% of
sales. The decrease in gross margin reflects lower production levels, higher
manufacturing fixed costs, competitive pressures on distribution activities,
and costs related to the Argos, IN facility. These factors impacted gross
margin as a percentage of sales by 2%, 1%, 2% and 1%, respectively.
8
<PAGE>
OPERATING EXPENSES. Operating expenses of $17.7 million in 1996
decreased $1.6 million from $19.3 million in 1995, which includes $2.4
million and $0.2 million of operating expenses attributable to Continental
and Vanguard, respectively, which are not in the comparable 1995 results.
Excluding Continental and Vanguard, operating expenses decreased $4.0 million
from 1995 to 1996. This decrease resulted primarily from the inclusion in
the 1995 results of significant one time charges of $4.7 million. The one
time charges included the following: a charge of $2.5 million related to the
termination of Continental's president, $1.0 million to settle the employment
agreement of the former president of Texberry, $0.2 million for severance
packages offered to other former members of Texberry's management, $0.1
million for a study and implementation of procedures to better use the
Company's warehouse facilities in the Houston area, $0.3 million related to
relocating members of new management to the Houston area, $0.3 million for
the reduction of net realizable value of certain production equipment the
Company removed from service, $0.2 million for new sales literature and
stationary, and $0.1 million of higher bonuses in 1995 than in 1996 at the
Company's Ohio operations. In 1996, the Company incurred a net increase of
$0.3 million of personnel costs as compared to 1995, consisting of a $0.6
million increase reflecting new management personnel in the Company's Houston
operations, increases in salaries at the Company's Ohio operations, and
increased sales staff to support the Company's Bettix-Registered Trademark-
sales efforts, offset by a $0.1 million decrease realized at the Company's
West Virginia operations as a result of a reduction in sales personnel, and a
$0.3 million decrease realized at the Company's Houston operations as a
result of the reorganization. Operating expenses include a $0.4 million
increase in amortization of goodwill due to the timing of the acquisition of
Continental in February 1995. The remaining decrease of $0.1 million
represents the reduction of various administrative expenses at the Company's
Houston operations.
REORGANIZATION COSTS. During 1996, reorganization costs of $2.3 million
were incurred as a result of the sale of the Company's distribution
operations and reorganization of its manufacturing operations. Net assets of
the distribution operations of $4.1 million, including $6.5 million of
goodwill, were sold for cash of $1.6 million and a deferred purchase price
receivable of $2.3 million, resulting in a loss on the sale of $0.6 million,
including transaction costs incurred of $0.4 million. In addition, the
purchaser placed $2.6 million in an escrow account, the disposition of which
is contingent on the purchaser achieving certain operating results over the
one year period following closing. Until realized, the escrow funds are not
included as part of the sales price. In connection with the reorganization,
the Company consolidated management of the manufacturing operations under one
president and terminated the employment of another executive resulting in
severance expense of $0.8 million. In addition, certain other employees were
terminated at the time of the reorganization resulting in additional
severance costs of $0.4 million. Additional costs related to the
reorganization of $0.5 million, including a $0.3 million write-off of unsold
or discontinued inventory, were also incurred.
INTEREST EXPENSE. Interest expense of $10.7 million in 1996 increased $3.4
million from interest expense of $7.3 million in 1995. The increase reflects
additional indebtedness related to the acquisition of Continental ($2.0
million), higher balances on the Company's revolving credit facility in 1996
($0.7 million), and an increase in the effective interest rate on the Company's
new senior notes compared with prior financing.
PROVISION (BENEFIT) FOR INCOME TAXES. During the 1996 period the Company
recorded a benefit from income taxes of $1.6 million compared to a benefit for
income taxes of $1.9 million in the 1995 period. The benefit recorded in 1996
arises from the losses incurred in that period. The effective rate of 13.7% is
less than the effective rate of 28.8% recorded in 1995, primarily because of the
limitations on benefits generated from the losses in 1996. The effective tax
rate in 1996 is lower than the statutory rate due to goodwill and other
permanent differences from the sale of the distribution operations.
EXTRAORDINARY ITEM. In February 1995, in connection with the placement
of its senior notes, the Company repaid all of its then existing debt. The
repayment of this debt was early and resulted in an extraordinary charge of
$2.9 million consisting of cash prepayment premiums of $1.1 million plus $3.3
million from the write off of existing deferred financing costs, partially
offset by a related income tax benefit of $1.5 million. There was no similar
transaction during the 1996 period.
9
<PAGE>
YEAR ENDED JUNE 30, 1995 COMPARED WITH THE YEAR ENDED JUNE 30, 1994
Due to the acquisitions of Patrick in May 1994 and Continental in February
1995, 49 days of Patrick's operating results are included in the consolidated
results for 1994 and 140 days of Continental are included in 1995. As a
consequence of these acquisitions, the results for the year ended June 30, 1995
are not directly comparable to the results for the year ended June 30, 1994.
NET SALES. Net sales for the year ended June 30, 1995, increased $31.8
million (57.8%) to $86.8 million from $55 million in 1994. This increase was
primarily attributable to the inclusion of sales from the acquisitions of
Patrick in May 1994 and Continental in February 1995. These acquisitions
contributed $26.6 million of the total sales increase for 1995 over 1994. The
$5.2 million balance of the increase in sales resulted from increased volume
($3.7 million) and from pass through of resin cost increases.
GROSS PROFIT. Gross profit of $20 million in 1995 increased $6.6
million (49%) from $13.4 million in 1994. This increase was due to the
inclusion of $7.9 million in gross profit from the results of Patrick and
Continental from their respective dates of acquisition. The $1.3 million
decrease in gross profit without the effect of the acquisitions was primarily
the result of higher depreciation of fixed assets ($0.5 million), higher
resin costs ($0.4 million), costs related to a reduction in direct labor
force in June 1995 ($0.2 million) and deterioration of margin on the
Company's distributed products. Excluding the impact of Continental and
Patrick, gross margin deteriorated from 24% of sales in 1994 to 18% of
sales in 1995. The decrease in gross margin reflects higher fixed costs in
the Company's manufacturing facilities, the effect of higher resin prices on
the Company's normal margins and a reduction in margins realized on
distributed products. These factors impacted gross margin as percentage of
sales by 4%, 1% and 1%, respectively. While the Company has historically
been able to pass through resin cost increases to its customers, the amount
of these increases passed through during 1995, while sufficient to cover the
Company's increase in cost, were not sufficient to protect the Company's
normal gross margins. The reconfiguration of the Company's manufacturing
facility in Houston and the start up of its manufacturing facility in Cape
Girardeau have resulted in higher fixed costs for depreciation and operating
leases. The Company expects higher depreciation and lease expense will
increase fixed costs by approximately $0.9 million and $0.4 million per year,
respectively. Plant reconfiguration costs in 1994 consisted of costs related
to the disposal or sale of certain resins and finished goods resulting from a
review of substantially all of Texberry's manufactured inventory and costs
associated with moving production and ancillary equipment during 1994.
OPERATING EXPENSES. Operating expenses of $19.3 million in 1995
increased $9.4 million from their 1994 level of $9.9 million. This increase
was primarily due to the inclusion of $6.5 million in costs related to
Patrick and Continental. Continental's operating expenses during 1995
include a charge of $2.5 million related to the termination of its president.
Excluding Patrick and Continental, operating expenses increased $2.9 million
from 1994 to 1995. This increase consisted primarily of $1 million to settle
the employment agreement of the former president of Texberry, $0.2 million
for severance packages offered to other former members of Texberry's
management, $0.6 million related to personnel additions including new
executives and recruiting fees, $0.1 million for a study and implementation
of procedures to better use warehouse facilities in the Company's Houston
operations, $0.3 million related to relocating members of new management to
the Houston area, $0.3 million for the reduction to net realizable value of
certain production equipment the Company was in the process of removing from
service, and $0.2 million for new sales literature and stationary, with the
balance reflecting higher administrative costs. Plant reconfiguration costs
included in operating expenses during 1994 consisted of costs related to a
management consulting and operations review totaling $0.1 million. There
were no comparable costs during 1995. Abandoned acquisition costs in 1994
represent incremental costs directly associated with a potential purchase of
another company which was not consummated. There were no comparable costs
during 1995. Amortization of intangible assets consists of the amortization
of goodwill. The increase from 1994 to 1995 results from the acquisitions of
Patrick and Continental in May 1994 and February 1995, respectively.
INTEREST EXPENSE. Interest expense was $7.3 million in 1995, an
increase of $4.5 million from 1994. The increase was due to increased debt
related to the purchase of Patrick and Continental ($3.3 million), an
increase in the effective interest
11
<PAGE>
rate on the Company's new senior notes as compared with prior financing ($0.6
million) and increased borrowings in 1995.
OTHER EXPENSE (INCOME). Other income of $0.1 million in 1995 compares with
$0.1 million of other expenses in 1994. The income in 1995 consists of rental
income received during the year from a tenant at the Company's new Argos,
Indiana facility.
INCOME TAXES. In 1995 the Company recorded an income tax benefit of $1.9
million as compared with a provision for income taxes of $0.4 million in 1994.
The benefit results from the operating losses incurred by the Company during the
year and consists of a current benefit of $1 million representing income taxes
currently refundable, and a deferred benefit of $0.9 million representing a
reduction in aggregate deferred tax liabilities from the recognition of
operating losses for financial reporting purposes.
MINORITY INTEREST. The minority interest in 1994 and 1995 represents the
minority shareholder's share in the income of Patrick during these periods.
This interest was purchased by the Company during 1995 in exchange for stock.
EXTRAORDINARY ITEM. In February 1995, in connection with the placement of
its senior notes, the Company repaid all of its then existing debt. The
repayment of this debt was early and resulted in an extraordinary charge of $2.9
million consisting of cash prepayment premiums of $1.1 million plus $3.3 million
from the write off of existing deferred financing costs, partially offset by a
related income tax benefit of $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been significantly
impacted by its acquisition and financing activities and have recently been
adversely impacted by the reduction in operating income and the increase in
interest costs.
The Company has historically financed its business activities and
acquisitions through debt, preferred and common equity placements and
internally generated cash flow. In 1996, the Company's operations provided
approximately $2.4 million in cash compared with a usage of $1.5 million in
1995. However, interest costs have risen to $10.7 million for 1996 from $7.3
million for 1995. Cash flow from operations was positively affected by
decreases in accounts receivable of $0.8 million, inventories of $2.1
million, prepaid expenses of $0.1 million, and the income tax refund
receivable of $1.5 million, partially offset by a reduction in accrued
liabilities of $1.4 million.
The Company's investing activities used $6.2 million in 1996 compared
with $31.1 million in 1995. Capital expenditures totaled $7.1 million in
1996 as compared to capital expenditures of $9.0 million in 1995. These
capital investments are directed toward increasing the efficiency and overall
capacity of the Company's manufacturing operations. Of the total $7.1
million of capital expenditures in 1996, $1.7 million related to the
Company's new manufacturing facility in Argos, IN. At June 30, 1996, the
Company has outstanding commitments to purchase approximately $2.5 million
for manufacturing machinery and equipment and molds. The Company expects to
take delivery of this equipment through January 1997. In 1995 the Company
also used $22.1 million in investing activities related to the acquisition of
Continental which was completed in February 1995. In 1996 the Company used
$0.8 million in investing activities related to the acquisition of Vanguard
which was completed in May 1996. This usage was partially offset by proceeds
of $1.6 million received on the sale of the Company's distribution operations
which was completed in June 1996.
The Company has a line of credit agreement with a bank which provides
for up to $15 million of borrowings (expandable to $20 million) limited to
specified amounts of inventory and accounts receivable. At October 11, 1996,
outstanding borrowings and remaining availability under the revolving line of
credit agreement were $10.2 million and $1.5 million, respectively. At June
30, 1996, covenants contained in the line of credit agreement required the
Company to maintain certain levels of working capital deficiency, interest
coverage, fixed charge coverage, and net worth, which are measured quarterly
on a consolidated basis. At June 30, 1996, the Company was in violation of
the working capital deficiency, interest coverage, fixed charge coverage and
net worth requirements. The Company has obtained waivers of those covenants
as of that date and for the period then ended.
Following the sale of the Company's senior notes and as a result of the
debt incurred to finance the Company's acquisitions and capital improvements,
the Company became substantially leveraged. The degree to which the Company is
leveraged (i) could impact the ability of the Company to obtain additional
financing in the future for working capital, capital expenditures or general
corporate purposes, (ii) will require the Company to devote a substantial
portion of its cash flow from operations to the payment of interest on
indebtedness, and (iii) may result in the Company's becoming more vulnerable to
economic conditions or competitive pressures.
While the reductions in gross profit in 1996 are significant, management
has taken numerous steps to improve the Company's liquidity including the sale
of the distribution operations in June 1996, the reduction of personnel and
other administrative costs, and steps to improve the gross margin of its
manufacturing operations. In addition, the Company continues to focus on new
sales opportunities and customer relationships.
The sale of the distribution operations in June 1996 provided additional
liquidity of approximately $2.1 million. As a result of this sale, working
capital needs have been reduced and significant cost savings achieved through
the closure of the Company's branch operations, including a reduction in
administrative personnel and other related costs.
The Company has invested significantly in new machinery and equipment over
the past three years to improve its manufacturing operations. As a result, the
Company expects to be able to reduce its capital expenditures to approximately
$5.0 million in 1997 which is less than previous years' levels. A significant
portion of these capital expenditures are expected to be financed under
currently available borrowing arrangements.
Management believes that the Company's plans of continued focus on
increasing sales while decreasing costs of operations coupled with the recent
acquisition and reorganization of the Company's operating units will lead to
increased production capabilities and eventually, an increase in the
Company's customer base.
Management believes that the above actions along with its current borrowing
arrangements will provide the liquidity to fund the Company's operations for the
coming year.
EBITDA. EBITDA is computed by adding the sum of interest expense, amortization
of deferred loan costs, depreciation and amortization, to income before income
taxes. EBITDA is presented to provide additional information about the
Company's ability to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not an alternative to operating income
as a measure of liquidity or representative of cash available to fund all cash
flow needs.
EBITDA of $5.8 million (6.2% of net sales) for the year ended June 30, 1996 was
lower as compared with $7.4 million (8.6% of net sales) in 1995. EBITDA in 1996
includes the results of Continental for the full period which provided $4.2
million of EBITDA compared with $0.7 million provided in the 1995 period when
Continental was included from its February 10 acquisition date. Excluding the
effect of Continental, EBITDA decreased $4.7 million. This decrease was due to
the degradation of the Company's gross margin in 1996 compared to 1995, as
discussed above under Gross Profit, the increases in personnel costs, as
discussed above under Operating Expenses and the costs incurred as a result
of the reorganization of the Company's manufacturing operations, as
discussed above under Reorganization Costs.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the Company are included
in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company as of August 31, 1996,
are as follows.
NAME AGE POSITION(S)
---- --- -----------
Leon Farahnik 43 Chairman of the Board, President and
Chief Executive Officer
Edward Gelbard 50 Director
Emil Halimi 47 Director
Martin Jelenko 51 Director
Thomas Schneider 60 Director
John J. Ghaznavi 57 Director
Tom Richmond 36 Director, President, Chief Operating
Officer of RXI Plastics Inc.
Marvin Liebman 56 Executive Vice President-Finance, Chief
Financial
Officer and Secretary
Richard Zirkler 41 Executive Vice President-Operations
John Buckley 43 Vice President-Manufacturing
BOARD OF DIRECTORS
12
<PAGE>
Set forth below is certain information regarding the members of the Company's
Board of Directors.
LEON FARAHNIK has been Chairman of the Board, President and Chief
Executive Officer of the Company since its incorporation in April 1993. Mr.
Farahnik is also Chairman of the Board of Plastics. Mr. Farahnik founded
Rhino-X Industries, Inc. ("Rhino-X"), a manufacturer of HDPE plastic trash
bags, in January 1989 and served as the President and Chief Executive Officer
of Rhino-X until July 1991, when the company was sold to Carlisle Plastics,
Inc. Thereafter, Mr. Farahnik served as Chief Executive Officer of Rhino-X
until December 1992. In 1979, Mr. Farahnik founded Hilex Poly, a
manufacturer of high molecular weight, HDPE plastic bags, and was President
and Chief Executive Officer of Hilex Poly until the company was sold in
January 1989 to Sonoco Products Company. Mr. Farahnik has been a director of
Alterra Holdings Corporation, a rubber products manufacturer headquartered in
South Gate, California, since December 1993.
EDWARD GELBARD has been a director of the Company since June 1993. Mr.
Gelbard has been Chairman of the Board of Envirothene Holdings, Inc., a
plastics recycling company located in Chino, California, since October 1990.
EMIL HALIMI has been a director of the Company since June 1993. Mr. Halimi
has been President of System Packaging Company, Inc., a Los Angeles, California,
distributor of packaging materials since 1983.
MARTIN JELENKO has been a director of the Company since January 1995. Mr.
Jelenko is presently a consultant to BT Capital Partners, Inc. ("BT Capital").
From February 1992 through August 1996 Mr. Jelenko was a managing director of BT
Capital in Los Angeles, California, and was Chairman of the Board and Chief
Executive Officer of Maiden Lane Associates, Ltd., a Los Angeles, California,
and New York, New York, based buyout firm funded by the Home Insurance Company,
from 1988 to February 1992. Mr. Jelenko also is an attorney.
THOMAS SCHNEIDER has been a director of the Company since June 1993. Judge
Schneider has been a California Superior Court Judge since 1980. Judge
Schneider also is managing partner of MSF Estrella Property Co. ("Estrella") and
served as a director of Rhino-X Industries, Inc.
JOHN J. GHAZNAVI has been a director of the Company since February 1996. Mr.
Ghaznavi has been Chairman and Chief Executive Officer of G&G Investments, Inc.,
an investment and holding company, since 1989 and Chairman of Ghaznavi
Investments, Inc., a real estate management and consulting services company,
since 1979. Mr. Ghaznavi has also been a director of Glenshaw Glass Company, a
glass container manufacturer, since 1987 and Chairman and Chief Executive
Officer since August 1988. In addition, Mr. Ghaznavi has been Chairman of the
Board of Consumers Packaging, Inc., Canada's largest glass manufacturer, since
1993.
THOMAS RICHMOND has been a director of the Company since May 1996. From
February 1993 to October 1995, Mr. Richmond was Group Vice President for
Plastic Engineered Components, Inc., a plastics manufacturer. From February
1991 until January 1993, he was Vice President/General Manager of Berry
Plastics Corporation, a plastics manufacturer. Prior to joining Berry Plastics
Corporation, Mr. Richmond served as Vice President/General Manager of Carnaud
Metal Box Corporation, a subsidiary of Carnaud Metal Box, a packaging
and dispensing systems manufacturer, and Plant Manager of American National Can
Company, a major packaging company.
COMPOSITION OF THE BOARD OF DIRECTORS. Parties to the Company's Stockholders
Agreement dated as of June 17, 1993, as amended, who own stock entitled to vote
for the election of directors of the Company are obligated to vote such
securities in a manner such that the Board of Directors shall consist of (i) Mr.
Farahnik, (ii) Messrs. Schneider, Halimi and Gelbard, or such other persons as
shall be nominated by RXI Management, Inc. ("Parent"), subject to the approval
(not to be unreasonably withheld) of BT Capital, (iii) the special director
elected or approved by BT Capital, and (iv) two additional executive officers
from the Company or its subsidiaries, agreed to by Parent and BT Capital.
Pursuant to Mr. Farahnik's employment agreement, he is entitled to be
nominated for election as a director of the Company during the term of his
employment agreement, which ends on June 30, 1998.
13
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers of
the Company and its subsidiary who are not members of the Company's Board of
Directors.
MARVIN LIEBMAN has been the Executive Vice President-Finance, Chief Financial
Officer and Secretary of Holdings since April 1993. He was Vice President-
Finance at Texollini, Inc., a textile manufacturer, from January 1992 through
March 1993. Mr. Liebman was the Chief Financial Officer of Rhino-X from
September 1989 until December 1991. He was the Chief Financial Officer of Hilex
Poly from September 1987 until January 1989. Mr. Liebman is also a certified
public accountant.
RICHARD ZIRKLER has been the Executive Vice President-Operations of the
Company since April 1993. From April 1992 to April 1993, he was the Executive
Vice President-Operations for Texollini, Inc., a textile manufacturer. Mr.
Zirkler was the Executive Vice President of Rhino-X from September 1989 until
April 1992. From January 1984 until September 1989, he served as Executive Vice
President for Hilex Poly.
JOHN BUCKLEY has been the Vice President-Manufacturing of the Company since
November 1993. Prior thereto he was Vice President-Manufacturing of Rhino-X
from February 1990 through September 1993. Previously, he was Vice President of
Polytec Packaging Company from February 1989 until February 1990. Mr. Buckley
was Vice President-Manufacturing of Hilex Poly from August 1987 to January 1989.
Item 11. Executive Compensation.
BOARD OF DIRECTORS COMPENSATION
Members of the Board of Directors of the Company are reimbursed for out-of-
pocket expenses incurred in connection with their attendance at meetings of the
Board of Directors. Directors do not receive any compensation for their service
on the Board of Directors of the Company or its committees.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation paid by the Company during
the fiscal years ended June 30, 1996, 1995 and 1994 for services rendered in
all capacities during such year to (i) the Chief Executive Officer of the
Company, (ii) the four most highly compensated executive officers of the
Company and its subsidiaries, other than the Chief Executive Officer, who
were serving as executive officers at June 30, 1996 and earned cash
compensation of $100,000 or more during such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Leon Farahnik 1996 $300,000 -- --
Chairman of the Board, President, 1995 275,000 $100,000
Chief Executive Officer 1994 250,000
Marvin Liebman 1996 $157,500 -- --
Executive Vice President-Finance, 1995 150,313 50,000
Chief Financial Officer, Secretary 1994 125,000 30,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Richard Zirkler 1996 $157,500 -- --
Executive Vice President-Operations 1995 150,313 $20,000
1994 125,000 30,000
Harvey Casey 1996 $250,000 --
Former Director and President and Chief 1995(1) 130,000 $140,738 $50,000(2)
Executive Officer of Texberry
Thomas Richmond
Director and President and Chief Operating
Officer of Plastics 1996(3) $176,250 $12,000 -- --
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects compensation paid from January 1, 1995 when Mr. Casey was
employed by the Company. Mr. Casey resigned, effective July 1, 1996.
(2) Represents a signing bonus paid to Mr. Casey in connection with the
execution of an employment agreement between Mr. Casey and Texberry.
(3) Mr. Richmond joined the Company in October 1995.
On October 25, 1994, the Board of Directors of the Company adopted an
Employee Stock Option Plan (the "Employee Stock Option Plan") and currently
755,738 shares of Common Stock are reserved for issuance thereunder.
OPTION GRANTS FOR FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------------------------- ---------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR% PER SHARE ($) DATE 5% ($) 10% ($)
---- ------- ------------ ------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Leon Farahnik. . . . . . . . . -- 0 -- -- -- --
Marvin Liebman . . . . . . . . -- 0 -- -- -- --
Harvey Casey . . . . . . . . . -- 0 -- -- -- --
Thomas Richmond. . . . . . . . -- 0 -- -- -- --
Richard Zirkler. . . . . . . . -- 0 -- -- -- --
</TABLE>
15
<PAGE>
AGGREGATED OPTION EXERCISES FOR FISCAL YEAR 1996 AND JUNE 30, 1996 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF SHARES UNDERLYING OPTIONS AT 6/30/96
UNEXERCISED OPTIONS AT 6/30/96 ------------------
------------------------------
Name EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Leon Farahnik. . . . . . . . . . . -- -- -- --
Marvin Liebman . . . . . . . . . . -- -- -- --
Richard Zirkler. . . . . . . . . . -- -- -- --
Harvey Casey . . . . . . . . . . . -- 140,738 (1) (2) (2)
Thomas Richmond. . . . . . . . . . -- -- -- --
</TABLE>
- ---------------
(1) Mr. Casey's options were granted pursuant to an Option Agreement dated as
of January 1, 1995 between Mr. Casey and the Company and were relinquished
pursuant to a Severance Agreement effective as of July 19, 1996.
(2) Because there is no public market for the Common Stock, the value of
unexercised in-the-money options is not readily ascertainable.
Item 12. Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below as of August 31, 1996 is certain information regarding the
beneficial ownership of the voting stock of the Company and each class of equity
securities of Parent. Parent and the Company are not consolidated for tax
purposes.
The following table sets forth certain information as of August 31, 1996
regarding the beneficial ownership of the voting stock of the Company by each
person known to the Company to own beneficially 5% or more of the Common Stock
of the Company. Common Stock is the only capital stock of the Company with
voting rights, except under certain circumstances.
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
- ------------------------ ----------------------- -----------
RXI Management Corporation 4,870,500(2) 98.5%
11111 Santa Monica Blvd.
Suite 270
Los Angeles, CA 90025
Leon Farahnik 4,870,500(3) 98.5%
11111 Santa Monica Blvd.
Suite 270
Los Angeles, CA 90025
BT Capital Partners, Inc. 2,712,580(4) 35.4%
280 Park Avenue
New York, NY 11017
- ---------------
(1) Shares that a person is entitled to acquire upon exercise of options or
warrants within 60 days after August 31, 1996 are treated as issued and
outstanding for the purpose of determining beneficial ownership and
computing
16
<PAGE>
the percent of the class owned by such person or group of persons but not
for the purpose of computing the percent of class owned by any other
person.
(2) Parent has sole investment power. Parent has granted to Mr. Farahnik an
irrevocable proxy dated June 17, 1993 to vote all the shares of Common
Stock owned by Parent, in accordance with the Stockholders Agreement dated
as of June 17, 1993, as amended and restated. Such proxy is irrevocable so
long as Mr. Farahnik is the President of the Company. Mr. Farahnik
disclaims beneficial ownership of such shares.
(3) These shares represent the same shares for which Mr. Farahnik has sole
voting power pursuant to an irrevocable proxy and no investment power as
described in note (2). Mr. Farahnik disclaims beneficial ownership of such
shares.
(4) These shares represent 2,712,580 shares underlying warrants that are
currently exercisable. BT Capital has sole investment power with respect
to such warrants but no voting power. If the warrants were exercised, BT
Capital would have sole investment power and sole voting power of such
shares. These figures exclude an indefinite number of shares underlying
warrants that are not exercisable within 60 days of August 31, 1996 which
warrants BT Capital acquired pursuant to the 1995 Securities Purchase
Agreement. These figures also exclude a contingent warrant for 1,365,734
shares not exercisable within 60 days of August 31, 1996.
The following table sets forth certain information as of August 31, 1996
regarding the beneficial ownership of the equity securities of the Company and
of Parent by (i) each director of the Company, (ii) the Chief Executive Officer
of the Company and each other executive officer named in the Summary
Compensation Table and (iii) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP(1)(2) CLASS(2)
- ------------------------ -------------- -------------------------- --------
<S> <C> <C> <C>
Leon Farahnik(3) Parent Common Stock 1,477,545 65.0%
Company Common Stock 4,870,500 98.5%
Edward Gelbard Parent Common Stock -- --
Emil Halimi Parent Common Stock 353,479 15.6
Martin Jelenko(4) -- -- --
Thomas Schneider Parent Common Stock 176,735 7.8
Marvin Liebman Parent Common Stock 88,247 3.9
Richard Zirkler Parent Common Stock 88,247 3.9
John Buckley Parent Common Stock 88,247 3.9
Thomas Richmond -- -- --
John Ghaznavi -- -- --
All Directors and
Executive Officers as
a group (11 persons) Parent Common Stock 2,272,500 100.0
Company Common Stock 4,870,500 98.5
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed under this column (or shares such powers with his or her spouse)
unless otherwise noted.
(2) Shares that a person is entitled to acquire upon exercise of options or
warrants within 60 days after August 31, 1996 are treated as issued and
outstanding for the purpose of determining beneficial ownership and
computing
17
<PAGE>
the percent of the class owned by such person or group of persons but not for
the purpose of computing the percent of class owned by any other person.
(3) With respect to the Company's Common Stock, Mr. Farahnik has sole voting
power pursuant to an irrevocable proxy dated June 17, 1993 and has no
investment power. Such proxy is irrevocable only while Mr. Farahnik is
President of the Company. Mr. Farahnik disclaims beneficial ownership of
such shares.
(4) Mr. Jelenko is a consultant to and was a managing director of BT Capital,
which holds 9,260,702 shares of Series A Preferred Stock of the Company and
4,020,358 shares of Series B Preferred Stock of the Company (neither of
which have voting rights except under certain limited circumstances) and
holds warrants to purchase 4,078,314 shares of the Company's Common Stock,
of which warrants to purchase 2,712,580 shares are currently exercisable,
plus a warrant to purchase an indeterminate number of shares of Common
Stock of the Company. BT Capital has sole investment power with respect to
such warrants but no voting power. If the warrants were exercised, BT
Capital would have sole investment power and sole voting power of such
shares.
Item 13. Certain Relationships and Related Transactions
COMPENSATION COMMITTEE
The Board of Directors does not have a compensation committee or a
committee serving a similar function. Decisions regarding executive
compensation are made by the Board of Directors of the Company, which was
comprised of Messrs. Farahnik, Gelbard, Halimi, Jelenko, Schneider, Casey,
Richmond and Ghaznavi during the fiscal year ended June 30, 1996. Messrs.
Farahnik, Casey and Patrick served as officers of the Company, Texberry and
Patrick, respectively, during the fiscal year ended June 30, 1996. Mr.
Patrick resigned as a director of the Company and as an officer of Patrick
effective January 1, 1996. There is a Stock Option Committee of the Board of
Directors established in connection with the adoption of the Employee Stock
Option Plan and consisting of Mr. Farahnik, Mr. Jelenko and Judge Schneider.
It administers the Company's Employee Stock Option Plan. Mr. Farahnik is
Chairman of the Board of the Company and is also the President and Chief
Executive Officer of the Company. Set forth below are descriptions of
certain transactions between the Company and members of the Board of
Directors or their affiliates.
PATRICK HOLDINGS
PATRICK NOTE. A portion of the purchase price for the acquisition of the
business and assets of Patrick was financed through a promissory note of
Patrick (the "Patrick Note") in the principal amount of $4.5 million in favor
of the seller, Patrick Holdings. Mr. Robert Patrick, a former director of
the Company, owns approximately 87% of the capital stock of the noteholder,
Patrick Holdings. The Patrick Note bears interest at a rate of 8% per annum
payable quarterly in arrears beginning June 30, 1994. The principal amount
is payable in full on June 30, 1999. The Patrick Note was assigned to and
assumed by Plastics.
PATRICK LEASES. In connection with the acquisition of Patrick, the Company
entered into two leases, each dated as of May 12, 1994, pursuant to which
Patrick leases certain facilities from Patrick Holdings. Under one lease (the
"Ottawa Lease"), the Company leases its offices and production plant located in
Ottawa, Ohio. Pursuant to the other lease (the "Leipsic Lease"), the Company
leases its Leipsic, Ohio, warehouse facility. The Company paid an aggregate of
$80,788 and $426,211 in lease payments under the Ottawa Lease and Leipsic Lease,
respectively, during the fiscal year ended June 30, 1996. Fixed monthly lease
payments under the Ottawa Lease are $6,732. As of June 30, 1996, the monthly
lease payment required under the Leipsic Lease equals $34,877, subject to
adjustment if the Company leases additional space under such lease or if Patrick
Holdings finances the cost of capital improvements to the leased premises. The
initial term of each of the leases expires May 12, 1999. The Company is
entitled to renew each lease for up to two additional five-year terms. At any
time during the respective lease terms, the Company may elect to purchase the
Ottawa premises for $1.1 million and the Leipsic premises for $3.0 million plus
an amount equal to the undepreciated cost of any capital improvements made to
such premises by Patrick Holdings.
18
<PAGE>
Management of the Company believes that the terms of such leases are no less
favorable than the Company would be able to obtain as a result of arms-length
negotiations with an unaffiliated party.
HUDAK AGREEMENTS
Effective February 10, 1995, Thomas F. Hudak became employed as President
of Plastics and a member of the Company's Board of Directors, pursuant to a
five-year employment agreement. Mr. Hudak was a selling shareholder in the
acquisition of Continental and had served as an officer of Plastics since
1989. The employment agreement provided for a base salary of $250,000,
participation in various executive benefit programs and perquisites, as well
as for maintenance of certain insurance benefits for Mr. Hudak. In
consideration of Mr. Hudak's execution of the employment agreement, the
Company paid Mr. Hudak $2.0 million upon the consummation of the acquisition
of Continental. Mr. Hudak resigned as an officer of Plastics and director of
the Company effective July 1, 1995. The Company, Plastics and Mr. Hudak
entered into a letter of understanding dated July 18, 1995 related to the
resignation and the treatment of Mr. Hudak's employment agreement, pursuant
to which Mr. Hudak became entitled to receive an aggregate amount of
approximately $500,000 over a two-year period and 75,000 shares of Common
Stock of the Company.
CASEY AGREEMENTS
Pursuant to an Employment Agreement dated as of January 1, 1995, Harvey
Casey became employed as President of Texberry and a member of the Company's
Board of Directors. Mr. Casey and Plastics entered into a severance
agreement and mutual release ("Severance Agreement") effective as of July 19,
1996 relating to Mr. Casey's resignation and the termination of his
Employment Agreement. Pursuant to the terms of the Severance Agreement,
effective as of July 1, 1996, Mr. Casey is no longer employed by the Company.
Under the Severance Agreement, Mr. Casey is entitled to monthly payments of
$15,513 through and including June 30, 2002. In consideration of the monthly
payments, Mr. Casey agreed not to compete with the Company for a term ending
December 31, 1999, within the states of Texas or Louisiana in any manner or
capacity. Additionally, Mr. Casey agreed to the cancellation in full of the
Stock Option Agreement with the Company dated as of January 1, 1995, without
the exercising of the options.
LEASE AND OPTION TO PURCHASE TEXAS PROPERTY
Thomas Schneider, a director of the Company, is managing partner of Estrella,
which was assigned by Texberry all of Texberry's rights to purchase certain real
property, including a building, in Houston, Texas, which is located between
Texberry's two owned facilities, at a maximum effective cost of $700,000.
Beginning in October 1994, Texberry leased such property on a triple-net basis
from Estrella for an initial fifteen-year term (the "Estrella Lease"). Lease
payments aggregate $66,000 per year during the first five years of the lease
term, $40,080 for the next six months, and then are adjusted the next following
month and biannually thereafter based on the increase, if any, in the Consumer
Price Index for the Houston, Texas, area from October 1994. The Company, as
Texberry's assignee has an option to purchase the property at a price of
$818,000. The option to purchase expires at the end of the fifth year of the
lease term. Exercise of the option to purchase would terminate the lease.
Management of the Company believes that the terms of the lease are no less
favorable than the Company would be able to obtain as a result of arms-length
negotiations with an unaffiliated party, and the Boards of Directors of Texberry
and the Company, without the participation of Judge Schneider, expressly
approved this transaction.
BT CAPITAL
BT Capital owns 9,260,702 shares of Series A Preferred Stock, constituting
all the issued and outstanding shares thereof and two warrants to purchase an
aggregate of 2,413,653 shares of Common Stock (as adjusted to reflect a 2.2 to 1
stock split in December, 1994) and one contingent warrant (for 1,365,734 shares
of Common Stock) which is not immediately exercisable and which may be exercised
only in the event certain contingencies occur. BT Capital acquired all of these
securities in connection with the financing by the Company of its acquisitions
of Texberry and Patrick and paid an aggregate of approximately $8.2 million for
such securities. BT Capital also received placement fees aggregating
approximately $200,000 in connection therewith.
BT Capital also owns 4,020,358 shares of Series B Preferred Stock, a warrant
to purchase 298,927 shares of Common Stock and a contingent warrant for an
indeterminate number of shares of Common Stock, which contingent warrant is not
immediately exercisable and will be exercisable only upon occurrences of certain
events for an indeterminate number of shares having a fair market value equal to
an amount determined by a formula. Set forth below is certain information
regarding the securities and the contractual rights of BT Capital relating to
its ownership of equity securities of the Company.
BT STOCK PURCHASE AGREEMENT
Pursuant to the Stock Purchase Agreement dated as of May 12, 1994 between BT
Capital and the Company (the "BT Stock Purchase Agreement"), BT Capital
purchased 4,462,500 shares of Series A Preferred Stock in addition
19
<PAGE>
to the 3,750,000 shares it already owned (for a total of 8,212,500 shares), and
acquired (i) an Amended and Restated Class B Warrant (the "Class B Warrant") to
purchase up to 569,930 shares of Common Stock (adjusted to 1,253,846 shares and
increased to 1,365,734 shares as subsequently amended); (ii) a Class C Warrant
(the "Class C Warrant") to purchase up to 424,038 shares of Common Stock
(adjusted to 932,884 shares); and (iii) an Amended and Restated Class A Warrant
(the "Class A Warrant") to purchase up to 673,077 shares of Common Stock
(adjusted to 1,480,769 shares) (collectively, the "BT Warrants"). The Class B
Warrant is only exercisable upon the occurrence of certain Disposition Events
(as defined in the BT Stock Purchase Agreement), none of which have occurred, or
after June 30, 1999, and then only if specified targeted operating profit
figures are not realized. The BT Stock Purchase Agreement will remain in effect
so long as any shares of Series A Preferred Stock are outstanding or BT Capital
owns any shares of Series A Preferred Stock, the BT Warrants or any shares of
Common Stock issued upon the exercise of the BT Warrants, except that upon a
public offering of equity securities of the Company, the covenant and default
provisions of such agreement will terminate.
The BT Stock Purchase Agreement contains various negative covenants
which limit the ability of the Company to (i) incur additional indebtedness,
(ii) make certain acquisitions and capital expenditures, (iii) engage in any
transaction with a related person, or (iv) undertake certain other
transactions.
As described above, the BT Stock Purchase Agreement provides that the
Company shall not, and shall not permit any of its subsidiaries, to take
certain actions unless BT Capital shall have consented in writing or the
Special Director shall have voted in favor of taking such action. BT Capital
expressly consented to the
20
<PAGE>
acquisition of Continental, the acquisition of Vanguard, the disposition of
Texberry, the issuance of the Senior Notes, the execution and delivery of the
Indenture. BT Capital also has consented to the expenditure of additional
amounts for capital expenditures and capital leases, in each fiscal year,
effective with the fiscal year beginning July 1, 1994.
Pursuant to an Option Agreement dated as of June 17, 1993 between BT
Capital and Parent, in the event that the management of the Company
determines in good faith that it would be in the best interests of the
Company to take an action which is prohibited by the BT Stock Purchase
Agreement, Parent may require BT Capital either to consent to such action or
to sell to Parent shares of the Company's Common Stock and the BT Warrants in
an amount to be determined by BT Capital. In addition, BT Capital or its
successors and assigns (collectively, the "BT Holders"), at any time between
July 1, 2005 and May 12, 2014, are entitled to require the Company to
purchase all or a portion of any Common Stock held by them for the fair
market value of such shares as of the date the BT Holders elect to exercise
their put right. Upon the occurrence of an event of default under the BT Stock
Purchase Agreement, the holders of a majority of the Series A Preferred Stock
are entitled to elect a majority of the Board of Directors.
21
<PAGE>
1995 SECURITIES PURCHASE AGREEMENT
Pursuant to an agreement dated as of January 31, 1995 (the "1995 Securities
Purchase Agreement"), BT Capital purchased (i) 4,500,000 shares of Series B
Preferred Stock, (ii) a Class D Warrant initially exercisable for 384,335 shares
of Common Stock at a purchase price of $0.01 per share (the "Class D Warrant"),
and (iii) a Class E Warrant (the "Class E Warrant"), which is exercisable upon
certain Disposition Events (as defined therein), none of which has occurred,
that will enable the holder to acquire, at a purchase price of $.001 per share,
a number of shares of Common Stock whose aggregate fair market value, on the
date of issuance, will give an average annual internal rate of return of 35%
(inclusive of the value of dividends received) on the liquidation value amount
of 2,500,000 of the 4,500,000 shares of Series B Preferred Stock issued, until
such time as an aggregate of 2,500,000 shares of such Series B Preferred Stock
have been redeemed or repurchased. The Class E Warrant also will be
exercisable, for an additional 84,475 shares of Common Stock, if by August 1,
1996 an aggregate of 2,500,000 shares of Series B Preferred Stock have not been
redeemed or repurchased and for an additional 84,475 shares on each August 1
thereafter if by such date less than 2,500,000 shares of Series B Preferred
Stock have been redeemed or repurchased in the aggregate from February 1, 1995.
The Company agreed in the 1995 Securities Purchase Agreement to grant to the
holder of the Class E Warrant a put right with respect to all shares of Common
Stock issuable upon exercise of the Class E Warrant, upon the occurrence of a
Disposition Event, for a cash price equal to their fair market value, subject to
any limitations on repurchase of such shares contained in the Indenture.
The Company also agreed in the 1995 Securities Purchase Agreement to
reimburse BT Capital for its out-of- pocket legal fees and expenses incurred in
connection with the purchase of these securities.
The 1995 Securities Purchase Agreement does not contain negative covenants
similar to those contained in the BT Stock Purchase Agreement.
Pursuant to the 1995 Securities Purchase Agreement, the Company has agreed to
grant registration rights with respect to the shares of Common Stock issuable
upon exercise of the Class D Warrant and the Class E Warrant equivalent to, and
PARI PASSU with, the registration rights granted with respect to the shares of
Common Stock issuable
22
<PAGE>
upon exercise of the Class A Warrant, the Class B Warrant
and the Class C Warrant and certain demand and piggy-back rights with respect to
shares of Common Stock issuable upon conversion of the Series B Preferred Stock.
BT Capital sold to Massachusetts Mutual Life Insurance Company and a number
of its affiliates at the price BT Capital paid for such securities 1,000,000
shares of Series B Preferred Stock, plus a portion of the Class D Warrant to
purchase 85,408 shares of Common Stock and 22.2222% of the Class E Warrant.
STOCKHOLDERS AGREEMENT
The Company, Parent and BT Capital are parties to a Second Amended and
Restated Stockholders Agreement executed as of November 1, 1994 (the
"Stockholders Agreement"). Pursuant to the Stockholders Agreement, no holder (a
"Stockholder") of Common Stock or the BT Warrants, to the extent then
exercisable (collectively, the "Common Securities"), or the Series A Preferred
Stock may transfer any Common Securities or Series A Preferred Stock unless the
transferee is made a party to the Stockholders Agreement.
RIGHT OF FIRST REFUSAL. Subject to certain limited exceptions, a Stockholder
may not transfer any of its Common Securities or Series A Preferred Stock unless
such Stockholder has first offered to sell to each other Stockholder its pro
rata portion of the securities such Stockholder proposes to transfer.
COME-ALONG. In the event that any proposed transfer or series of related
transfers involves the transfer of more than 51% of the Common Securities, the
transferring Stockholder must first permit each other Stockholder of Common
Securities to transfer a pro rata portion of the Common Securities owned by it
in such transfer upon the same terms.
TAKE-ALONG. In the event that Stockholders representing at least 80% of the
outstanding Common Securities (the "Control Group") desire to accept an offer
for more Common Securities than the Control Group owns, the Control Group is
entitled to require each other Stockholder to sell on the same terms the same
proportionate part of the aggregate of such Stockholder's Common Securities as
the Control Group agrees to sell.
REPURCHASE BY THE COMPANY. Should Mr. Farahnik cease to be employed by the
Company or its subsidiaries for any reason or cease to have voting control of
Parent, the Company may elect to purchase all or a portion at least equal to 50%
of the Common Securities of Mr. Farahnik or Parent, subject to the Indenture.
In the event of the death or disability of any other Stockholder, the Company
may elect to purchase all or a portion at least equal to 50% of such
Stockholder's Common Securities, subject to the Indenture. If a Stockholder
other than Mr. Farahnik, who is an employee of the Company or its subsidiaries,
ceases such employment for a reason other than death or disability, the Company
may elect to purchase all or a portion at least equal to 50% of such
Stockholder's Common Securities, subject to the Indenture.
COMPOSITION OF THE BOARD; BT CAPITAL REPRESENTATION. Pursuant to the
Stockholders Agreement, each holder of securities entitled to vote for the
election of directors of the Company agreed to cause such securities to be voted
so that the Board of Directors of the Company shall consist of (i) the Special
Director designated by BT Capital, which became Martin Jelenko effective January
1, 1995, (ii) Leon Farahnik, (iii) Thomas Schneider, Emil Halimi and Edward
Gelbard, or such other persons as shall be nominated by Parent subject to the
approval of BT Capital, which approval will not be unreasonably withheld, (BT
Capital has approved John Ghaznavi) and (iv) two other additional executives of
the Company or any subsidiary, agreed to by Parent and BT Capital.
Notwithstanding the foregoing provisions of the Stockholders Agreement, upon the
occurrence and during the continuance of an Event of Noncompliance (as defined),
the holders of a majority of the Series A Preferred Stock, voting together as a
single class, are entitled to elect a majority of the Board of Directors of the
Company.
23
<PAGE>
PARENT'S PROXY. Pursuant to the Stockholders Agreement, Parent granted to
Mr. Farahnik an irrevocable proxy to vote all of the shares of capital stock of
the Company from time to time held by Parent (the "Proxy"). The Proxy is
exercisable until such time as Mr. Farahnik ceases to serve as President of the
Company.
BT REGISTRATION RIGHTS AGREEMENT
The Company and BT Capital are parties to a Second Amended and Restated
Registration Rights Agreement (the "BT Registration Rights Agreement") dated as
of February 10, 1995. Pursuant to the BT Registration Rights Agreement, BT
Capital or its successors and assignors (collectively, the "Registration
Holders") are entitled under certain circumstances to have the offer and sale of
shares of Common Stock held by them or which they are entitled to acquire upon
exercise of the BT Warrants, the Class D Warrants and the Class E Warrants (the
"Registrable Shares") or the conversion of Series B Preferred Stock (the
"Registrable Conversion Shares") included in a registration statement under the
Securities Act.
Registration Holders of at least a majority of the Registrable Shares are
entitled to require the Company to include Registrable Shares held by them in
one registration statement. The Registration Holders are also entitled to
have their Registrable Shares included in an unlimited number of registration
statements under the Securities Act pertaining to the offer and sale by the
Company of its capital stock, if, and only to the extent that, the
representative of the underwriters permits the inclusion in the registration
statement of the Registrable Shares. In addition, on or after January 31,
2000, Registration Holders of at least twenty percent (20%) of the
outstanding Registrable Conversion Shares (but not less than the number of
shares of Common Stock that would be issuable upon the conversion of 100,000
shares of Series B Preferred Stock) are entitled to require the Company to
include Registrable Conversion Shares held by them in one registration
statement.
The Company will bear the expenses, other than underwriters' discounts and
commissions, of all registrations pursuant to the BT Registration Rights
Agreement.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following consolidated financial statements of RXI Holdings, Inc.
and its subsidiaries are included in Item 8 and filed herewith:
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
RXI Holdings, Inc.
We have audited the accompanying consolidated balance sheets of RXI Holdings,
Inc. and subsidiary (the "Company") as of June 30, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for the years ended June 30, 1994, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1995 and
1996, and the results of its operations and its cash flows for the years ended
June 30, 1994, 1995 and 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Los Angeles, California
October 14, 1996
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------------
ASSETS 1995 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 8) $ 123,123 $ 24,045
Accounts receivable, net of allowance for doubtful
accounts of $341,400 and $482,784 as of June 30, 1995
and 1996, respectively (Notes 1 and 8) 11,549,469 9,034,093
Inventories (Notes 1, 4 and 8) 12,145,258 8,965,018
Prepaid expenses and other 895,314 885,881
Income taxes refund receivable 2,306,406 700,000
Deferred income taxes (Notes 1 and 14) 876,009
----------- -----------
Total current assets 27,895,579 19,609,037
PROPERTY, PLANT AND EQUIPMENT, Net
(Notes 1, 5, 8 and 9) 35,890,657 38,780,884
DEFERRED PURCHASE PRICE RECEIVABLE (Note 3) 2,250,000
INTANGIBLE AND OTHER ASSETS, Net (Notes 1, 2, 3, 6 and 9) 35,958,983 27,274,347
----------- -----------
TOTAL $99,745,219 $87,914,268
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
26
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) 1995 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 8,446,017 $ 7,303,143
Accrued liabilities (Notes 7 and 16) 5,079,531 4,002,926
Revolving line of credit (Note 8) 7,206,549 6,551,564
Current maturities of long-term obligations (Note 9) 206,035 705,006
Accrued interest (Notes 8 and 9) 3,294,513 3,869,728
Deferred Income Taxes (Notes 1 and 14) 142,855
----------- -----------
Total current liabilities 24,232,645 22,575,222
LONG-TERM OBLIGATIONS, Less current maturities
(Notes 9 and 16) 64,526,103 66,620,558
DEFERRED INCOME TAXES (Notes 1 and 14) 3,609,639 1,338,855
----------- -----------
Total liabilities 92,368,387 90,534,635
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
REDEEMABLE STOCK AND WARRANTS (Note 11) 623,000 863,000
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY) (Notes 8 and 9):
Series A preferred stock, par value $0.001 per share; $1.00
liquidation value; 15,000,000 shares authorized at June 30, 1995
and 1996; 8,376,750 and 9,260,702 shares issued and outstanding at
June 30, 1995 and 1996, respectively (Note 12) 8,377 9,261
Series B preferred stock, par value $0.001 per share; $1.00
liquidation value; 10,000,000 shares authorized at June 30, 1995
and 1996; 4,561,250 and 5,169,030 shares issued and outstanding
at June 30, 1995 and 1996, respectively (Note 12) 4,561 5,168
Class A common stock, par value $0.001 per share; 15,000,000
shares authorized at June 30, 1995 and 1996; 5,098,238
and 4,945,500 shares issued and outstanding at
June 30, 1995 and 1996, respectively (Notes 12 and 16) 2,653 2,500
Warrants (Notes 9, 11 and 12) 1,608,150 1,608,150
Additional paid-in capital 13,477,479 13,216,539
Accumulated deficit (8,347,388) (18,324,985)
----------- -----------
Total shareholders' equity (deficiency) 6,753,832 (3,483,367)
----------- -----------
TOTAL $99,745,219 $87,914,268
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
(Concluded)
27
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
SALES (Notes 1 and 10) $ 55,052,269 $ 86,779,106 $ 93,962,979
COST OF SALES (Note 15) 40,847,528 66,755,763 74,767,709
PLANT RECONFIGURATION COSTS (Note 13) 830,435
------------ ------------ ------------
GROSS PROFIT 13,374,306 20,023,343 19,195,270
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 16) 9,082,222 17,391,779 15,707,401
PLANT RECONFIGURATION COSTS (Note 13) 66,241
ABANDONED ACQUISITION COSTS (Note 1) 300,666
WRITE OFF OF EQUIPMENT 375,000
AMORTIZATION OF INTANGIBLE ASSETS
(Notes 1 and 6) 428,344 1,571,537 2,018,394
------------ ------------ ------------
OPERATING INCOME 3,496,833 685,027 1,469,475
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest (Notes 8 and 9) 2,735,766 7,284,032 10,661,938
Reorganization costs (Notes 1, 3 and 16) 2,277,653
Other 49,768 (102,711) 105,236
------------ ------------ ------------
Total other expense 2,785,534 7,181,321 13,044,827
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 711,299 (6,496,294) (11,575,352)
PROVISION (BENEFIT) FOR INCOME TAXES
(Notes 1 and 14) 388,356 (1,877,181) (1,597,755)
------------ ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 322,943 (4,619,113) (9,977,597)
MINORITY INTEREST IN INCOME OF SUBSIDIARY
(Note 2) 7,412 10,457 --
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 315,531 (4,629,570) (9,977,597)
EXTRAORDINARY ITEM, Net of benefit from
income taxes of $1,477,156 (Notes 1 and 9) 2,943,080
------------ ------------ ------------
NET INCOME (LOSS) $ 315,531 $(7,572,650) $(9,977,597)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK
------------------------------------------ COMMON STOCK
SERIES A SERIES B CLASS A
------------------ ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 3,750,000 $ 3,750 2,750,000 $ 1,250
Issuance of common stock, net 1,732,500 789
Issuance of preferred stock, net 4,462,500 4,463
Dividends paid on preferred stock
Accretion to redeemable stock -
Class A and Class C warrants
Net income
----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1994 8,212,500 8,213 4,482,500 2,039
Dividends paid on preferred stock
Accretion to redeemable stock -
Class B common stock
Accretion to redeemable stock - Class A and
Class C warrants
Issuance of detachable stock purchase
warrants, net $1,128,150
Issuance of stock purchase warrant, net 480,000
Issuance of common stock, net 400,000 398
Issuance of common stock to former executive 75,000 75
Issuance of preferred stock, net 4,500,000 $ 4,500
Purchase of minority interest 140,738 141
Dividend paid in kind 164,250 164 61,250 61
Net loss
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1995 8,376,750 8,377 4,561,250 4,561 5,098,238 2,653 1,608,150
Accretion to redeemable stock - Class A and
Class C warrants
Repurchase and retirement of common stock (152,738) (153)
Dividends paid in kind 883,952 884 607,780 607
Net loss
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 9,260,702 $ 9,261 5,169,030 $ 5,168 4,945,500 $ 2,500 $1,608,150
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Additional
Paid-in Accumulated
Capital Deficit Total
BALANCE, JUNE 30, 1993 $ 4,383,273 $ (157,192) $ 4,231,081
Issuance of common stock, net 497,966 498,755
Issuance of preferred stock, net 4,346,538 4,351,001
Dividends paid on preferred stock (358,611) (358,611)
Accretion to redeemable stock -
Class A and Class C warrants (95,000) (95,000)
Net income 315,531 315,531
----------- ------------ -----------
BALANCE, JUNE 30, 1994 9,132,777 (200,272) 8,942,757
Dividends paid on preferred stock (331,200) (331,200)
Accretion to redeemable stock -
Class B common stock (442,247) (42,753) (485,000)
Accretion to redeemable stock -
Class A and Class C warrants (93,000) (93,000)
Issuance of detachable stock purchase
warrants, net 1,128,150
Issuance of stock purchase warrant, net 480,000
Issuance of common stock, net 493,567 493,965
Issuance of common stock to former
executive 93,675 93,750
Issuance of preferred stock, net 3,947,217 3,951,717
Purchase of minority interest 145,202 145,343
Dividend paid in kind 200,288 (200,513)
Net loss (7,572,650) (7,572,650)
----------- ------------ -----------
BALANCE, JUNE 30, 1995 13,477,479 (8,347,388) 6,753,832
Accretion to redeemable stock -
Class A and Class C warrants (240,000) (240,000)
Repurchase and retirement of
common stock (19,449) (19,602)
Dividends paid in kind (1,491)
Net loss (9,977,597) (9,977,597)
----------- ------------ -----------
BALANCE, JUNE 30, 1996 $13,216,539 $(18,324,985) $(3,483,367)
----------- ------------ -----------
----------- ------------ -----------
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 315,531 $ (7,572,650) $ (9,977,597)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,000,755 7,301,477 7,548,747
Deferred income taxes 208,907 (864,811) (796,089)
Minority interest in income of subsidiary 7,412 10,457
Stock compensation 93,750
Noncash portion of extraordinary item 1,839,551
Loss on sale of distribution operations 642,734
Changes in operating assets and liabilities,
net of effects of business acquisitions and disposition:
Accounts receivable (1,810,676) (1,194,999) 822,614
Inventories 512,410 (4,941,614) 2,129,774
Prepaid expenses and other (118,564) 30,381 74,107
Income tax refund receivable (222,014) (630,648) 1,502,188
Prepaid compensation (2,000,000)
Accounts payable 2,535,695 634,846 1,249,456
Accrued liabilities (644,542) 2,513,682 (1,366,340)
Accrued interest 3,294,513 568,950
Amount owed to related company (114,896)
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,670,018 (1,486,065) 2,398,544
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in business acquisitions (17,436,191) (22,053,664) (759,608)
Net proceeds from sale of distribution operations 1,623,747
Purchases of property, plant and equipment (4,115,315) (9,023,836) (7,093,086)
Proceeds from dispositions of other assets 65,183
Purchases of other assets (8,737) (13,561)
------------ ------------ ------------
Net cash used in investing activities (21,486,323) (31,086,237) (6,242,508)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of senior notes 58,828,050
Issuance of long-term debt 17,824,989 4,129,000 1,402,804
Proceeds from issuance of preferred stock 4,351,001 3,951,717
Proceeds from issuance of common stock 450,755 493,965
Proceeds from issuance of warrants 1,608,150
Proceeds from issuance of redeemable stock and warrants 362,000 20,000
Repurchase of common stock (19,602)
Purchase of Class B redeemable common stock (650,000)
Repayment of long-term debt (2,895,664) (35,329,225) (310,062)
Payment of debt issuance costs (1,858,390) (4,642,817) (249,013)
Dividends paid on Series A preferred stock (358,611) (331,200)
Net borrowings under revolving line of credit 153,160 3,693,199 2,920,759
------------ ------------ ------------
Net cash provided by financing activities 18,029,240 31,770,839 3,744,886
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
30
<PAGE>
<TABLE>
<CAPTION>
RXI HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
- ----------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
DECREASE IN CASH $ (787,065) $ (801,463) $ (99,078)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,711,651 924,586 123,123
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 924,586 $ 123,123 $ 24,045
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -
Supplemental schedule of noncash transactions -
In connection with the business acquisitions
(Note 2), liabilities were assumed as follows:
Fair value of assets acquired $ 23,590,763 $ 26,531,677 $ 3,510,661
Net cash used in business acquisitions (17,436,191) (22,053,664) (759,608)
Term notes issued (4,500,000) (576,470)
Payable to seller (283,397)
Common stock of subsidiary issued (4,605)
------------ ------------ ------------
LIABILITIES ASSUMED $ (1,366,570) $ (4,478,013) $ (2,174,583)
------------ ------------ ------------
------------ ------------ ------------
In connection with the sale of
distribution operations (Note 3), liabilities
were assumed by the purchaser as follows:
Fair value of assets sold $(11,253,585)
Net cash received on proceeds of sale 1,623,747
Deferred purchase price receivable 2,250,000
------------
LIABILITIES ASSUMED BY PURCHASER $ 7,379,838
------------
------------
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
Interest $ 2,369,434 $ 3,223,207 $ 9,365,431
------------ ------------ ------------
------------ ------------ ------------
Income taxes $ 410,500 $ (297,952) $ (2,230,637)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
(Concluded)
31
<PAGE>
RXI HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND ACTIVITIES - RXI Holdings, Inc. ("RXI") was incorporated
on April 22, 1993 for the purpose of acquiring and operating plastic
container manufacturing operations. RXI currently manufactures plastic
containers, caps, closures and fitments in the Gulf Coast, Western,
Midwestern and Eastern regions of the United States. In May 1996, the
Company acquired an additional plastic container manufacturing company (See
Note 2), and in June 1996, the Company sold its distribution business (See
Note 3).
REORGANIZATION - RXI Holdings, Inc. is a holding company with no assets
or operations other than its investment in its wholly owned subsidiary.
In May of 1996, RXI completed a reorganization (see Note 3)
of its wholly owned subsidiaries, Texberry Container Corporation
("Texberry") and Patrick Plastics, Inc. ("Patrick"), transferring
Texberry's manufacturing operations to, and merging Patrick with,
the third wholly owned subsidiary, Continental Plastics, Incorporated
("Continental") (see Note 2), which had been renamed RXI Plastics, Inc.
("Plastics").
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of RXI and its wholly owned subsidiary (the
"Company"). The accounts of each business acquired are included from their
respective dates of acquisition. All significant intercompany balances and
transactions have been eliminated in consolidation.
MANAGEMENT PLANS - As shown in the accompanying financial statements,
during the year ended June 30, 1996, the Company incurred a net loss of
$9,977,597, and as of that date, the Company's accumulated deficit totaled
$18,324,985 and total liabilities, excluding redeemable stock and warrants,
exceeded total assets by $2,620,367. Additionally, as described in Note
8, the Company was not in compliance with several financial covenants of
its short-term revolving line of credit as of June 30, 1996, but received
waivers of those covenants as of that date and for the period then ended.
Subsequent to year end, the Company negotiated new covenants with the
financial institution.
Management's plans include the continued focus on increasing sales and
decreasing the costs of operations. Management believes the recent
acquisition and reorganization (see Notes 2 and 3) will lead to increased
production capabilities and an increase in the Company's customer base.
Additionally, due to the consolidation of management and the reduction in
the overall workforce, the Company expects an overall decrease in general
and administrative expenses.
CASH EQUIVALENTS - The Company considers all highly liquid investments with
a maturity date of 90 days or less at the time of original purchase to be
cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that subject the
Company to credit risk consist primarily of accounts receivable.
Concentration of credit risk with respect to accounts receivable are
generally diversified due to the large number of entities composing the
Company's customer base and their geographic dispersion. The Company
performs ongoing credit evaluations of its customers and maintains an
allowance for potential credit losses.
32
<PAGE>
SIGNIFICANT CUSTOMER - The Company had one customer who accounted for
11.1%, 10.3% and 9.0% of the net sales for the years ended June 30, 1994,
1995 and 1996, respectively.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out ("FIFO") method. Effective
July 1, 1994, the Company changed its method of costing certain inventories
from the last-in, first-out (LIFO) method to the FIFO method. The impact
of this change was not material to the financial statements of the Company.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Property, plant and equipment acquired in connection with business
acquisitions are based upon their estimated fair values at the date of
acquisition. Depreciation is computed on the straight-line method over the
estimated useful lives ranging from 5 to 10 years for equipment and 30
years for buildings.
INTANGIBLE AND LONG-LIVED ASSETS - The Company periodically reviews the
recoverability of intangible and long-lived assets to determine if there
has been any permanent impairment. This assessment is performed based on
the estimated undiscounted future cash flows from operating activities
without interest charges compared with the carrying value of intangible and
long-lived assets. If the undiscounted future cash flows are less than the
carrying value, the Company's policy is to record a writedown, which is
determined based on the difference between the carrying value of the asset
and its fair market value.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." The
adoption of SFAS No. 121 had no effect on the financial statements in the
year of adoption.
GOODWILL - Goodwill is amortized on a straight-line basis over 15 and 25
years. The Company determines the estimated lives based upon management's
analysis of the historical operations of each company acquired and their
position within their respective markets.
DEBT ISSUANCE COSTS - Debt issuance costs, which relate to the costs of
obtaining financing, are being amortized over the period of the related
loan facilities (see Notes 6, 8 and 9).
INCOME TAXES - The Company provides for deferred income taxes on temporary
differences between the bases of assets and liabilities for financial
statement and income tax purposes (see Note 14).
REVENUE - The Company recognizes revenue upon shipment of product to the
customer, with appropriate allowance for estimated returns and other
allowances.
ABANDONED ACQUISITION COSTS - Abandoned acquisition costs represent
incremental costs directly related to a potential acquisition that was not
completed. All costs were incurred and expensed in fiscal year 1994.
EXTRAORDINARY ITEM - Pursuant to the closing of a $60 million senior
secured note offering and establishment of the Company's revolving line of
credit, all of the outstanding balances of certain revolving lines of
credit, and various term loans, lease and other equipment financing
arrangements, and subordinated notes were paid in full in February 1995.
These prepayments resulted in an extraordinary charge in fiscal year 1995
of approximately $2,943,000 after applicable income taxes (see Note 9).
33
<PAGE>
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash
equivalents, receivables and payables approximate fair values due to the
short maturities of these instruments. The carrying amount of the
Company's short-term debt approximates fair values because its interest
rate is based upon variable reference rates. The carrying amounts of the
Company's various long-term debts approximate fair value based on rates
currently available to the Company for debt with similar terms and
maturity.
RECLASSIFICATIONS - Certain items in prior years' financial statements have
been reclassified to conform with current year presentation.
2. BUSINESS ACQUISITIONS
The acquisitions described below have been accounted for using the purchase
method under which the purchase price was allocated to the assets acquired
and liabilities assumed based upon their relative fair values.
On May 12, 1994, the Company acquired certain assets and assumed certain
liabilities relating to the plastic bottle manufacturing operations of
Patrick for $16,749,870 in cash, a payable of $283,397, a subordinated
note payable of $4,500,000, 5% of the common stock of Patrick (recorded
at $4,605) and $686,321 of acquisition costs and $1,366,570 of
liabilities assumed.
The purchase price of $23,590,763 was allocated as follows:
Current assets $ 3,466,758
Property, plant and equipment and other assets 5,024,224
Goodwill 15,099,781
Current liabilities (1,366,570)
-----------
$22,224,193
-----------
-----------
In 1995, the Company purchased the minority interest in Patrick owned by
the seller. The seller, who was a director of the Company, received
140,738 shares of the Company's common stock, which shares' fair market
value was approximately $145,000. The additional investment is included in
goodwill in the accompanying consolidated balance sheet at June 30,
1995. During 1996, upon the resignation of the director, the shares were
repurchased in accordance with provisions set forth in the Second
Amended and Restated Stockholders Agreement dated November 1, 1994. The
shares were immediately retired.
34
<PAGE>
On February 10, 1995, the Company acquired the capital stock of
Continental. The purchase price of $22,122,267 was allocated as follows:
Current assets $ 5,076,243
Property, plant and equipment 10,615,166
Other assets 33,677
Goodwill 10,875,194
Current liabilities (1,412,040)
Other liabilities (3,065,973)
-----------
$22,122,267
-----------
-----------
On May 9, 1996, the Company acquired the capital stock of Vanguard
Plastics of California, Inc. ("Vanguard") for $600,000 in cash, a note
payable of $576,470, and $200,000 of acquisition costs. The purchase
price of $1,376,470 was allocated as follows:
Current assets $ 2,527,800
Property, plant and equipment 483,331
Other assets 539,922
Current liabilities (1,607,916)
Long-term liabilities (566,667)
-----------
$ 1,376,470
-----------
-----------
The excess of the fair value of the assets acquired over the purchase price
resulted in negative goodwill. The Company allocated the negative goodwill
against long-lived assets.
The goodwill recorded in connection with the acquisitions of Patrick and
Continental is being amortized over its estimated life of 15 years.
The following table sets forth the unaudited pro forma results of
operations for each period in which the acquisitions and disposition (see
Note 3) occurred and for the immediately preceding period as if the
acquisitions and disposition were consummated at the beginning of the
immediately preceding period:
YEAR ENDED JUNE 30,
--------------------------------------------
1994 1995 1996
Net sales $ 82,519,000 $ 74,252,697 $ 74,326,303
------------ ------------ ------------
------------ ------------ ------------
Loss before extraordinary
item $ (2,549,000) $ (6,647,400) $(9,348,973)
------------ ------------ ------------
------------ ------------ ------------
Net loss $ (2,549,000) $ (9,590,400) $(9,348,973)
------------ ------------ ------------
------------ ------------ ------------
3. REORGANIZATION AND SALE OF DISTRIBUTION OPERATIONS
During 1996, the Company elected to sell its distribution operations and
reorganize its manufacturing operations into one operating unit.
The distribution assets, including goodwill of $6,465,453, were sold
effective June 1, 1996, in a stock sale to an unrelated packaging
distributor, for $11,253,935, including assumed liabilities and excluding
escrow funds. The Company received $1,624,097 in cash and a
deferred purchase price receivable of $2,250,000 due in five years with
interest received quarterly at 10% per annum.
35
<PAGE>
In addition, the buyer deposited $2,628,369 into an escrow account, the
disposition of which is contingent on the buyer achieving certain
operating results over a one year period. The sale resulted in a loss
of $642,734, including transaction costs of $450,887, and before
recognition of the escrowed funds. This loss is included in the
reorganization costs in the accompanying financial statements for the
year ended June 30, 1996.
Assets sold and liabilities assumed of the distribution operations at
the time of sale were as follows:
MAY 31, 1996
Current assets $ 4,974,686
Property & equipment, net 5,643
Goodwill, net 6,465,453
Current liabilities (7,379,838)
-----------
$ 4,065,944
-----------
-----------
Summary operating results for the distribution operations for the period
from July 1, 1995 to May 31, 1996, are as follows:
Revenues $27,771,422
Cost of sales 23,469,199
-----------
Gross profit $ 4,302,223
-----------
-----------
In connection with the reorganization, the Company consolidated management
of the manufacturing operations under one President and terminated the
employment of another executive resulting in severance expense of $793,496
(See Note 16). In addition, certain other employees were terminated at the
time of the reorganization resulting in additional severance costs of
$349,335. Additional costs related to the reorganization of $492,088,
including a $340,463 write-off of unsold or discontinued inventory, are
also included in reorganization costs in the accompanying financial
statements for the year ended June 30, 1996.
4. INVENTORIES
Inventories consisted of the following:
JUNE 30,
---------------------------
1995 1996
Raw materials $ 3,073,034 $ 1,441,484
Finished goods 9,072,224 7,523,534
------------ -----------
Total $12,145,258 $ 8,965,018
------------ -----------
------------ -----------
36
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
JUNE 30,
-------------------------------
1995 1996
Land $ 1,007,707 $ 1,007,707
Buildings 7,696,201 8,368,735
Manufacturing equipment 27,704,379 30,875,178
Leased property under capital leases 404,093 784,413
Furniture, office and other equipment 2,307,121 2,305,998
Construction in progress 961,052 4,207,572
----------- -----------
40,080,553 47,549,603
Accumulated depreciation and
amortization (4,189,896) (8,768,719)
----------- -----------
Property, plant and equipment, net $35,890,657 $38,780,884
----------- -----------
----------- -----------
Construction in progress consists primarily of deposits for and purchases
of machinery and equipment at the Company's manufacturing facilities,
including costs to prepare those facilities for the installation. When the
installation is completed, the costs are transferred to the appropriate
property, plant and equipment category.
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
JUNE 30,
------------------------------
1995 1996
Goodwill $33,416,768 $26,186,519
Debt issuance costs 4,597,924 4,940,387
Organization costs 220,605 220,605
Deposits and other 57,261 299,042
----------- -----------
Total 38,292,558 31,646,553
Accumulated amortization (2,333,575) (4,372,206)
----------- -----------
Intangible and other assets, net $35,958,983 $27,274,347
----------- -----------
----------- -----------
37
<PAGE>
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
JUNE 30,
------------------------------
1995 1996
Accrued payroll and related taxes $2,165,227 $ 776,866
Accrued severance 1,257,650 681,309
Other accrued expenses 1,656,654 2,544,751
---------- ----------
$5,079,531 $4,002,926
---------- ----------
---------- ----------
8. REVOLVING LINE OF CREDIT
The Company has a line of credit agreement with a financial institution
that expires in 2000. The agreement provides for borrowings up to the
lesser of $15,000,000, or the sum of 85% of eligible accounts receivable
plus the lesser of 50% of eligible inventory or $6 million. The agreement
also provides the Company with the facility to issue letters of credit for
the purchase of equipment, provided, however, that the aggregate amount of
letters of credit outstanding at any time cannot exceed $1 million.
Borrowings under the revolving line of credit bear interest at the bank's
prime rate (9% and 8.25% at June 30, 1995 and 1996, respectively) plus 1%.
At June 30, 1996, covenants contained in the line of credit agreement
required the Company to maintain certain financial statistics related to
working capital, interest coverage, fixed charge ratio and net worth,
measured quarterly on a consolidated basis.
At June 30, 1996, the Company was in violation of these covenants and
obtained waivers of those covenants as of that date and for the period
then ended.
38
<PAGE>
9. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------
1995 1996
<S> <C> <C>
Subordinated seller note payable with interest only payments
due at 8% each quarter, beginning June 30, 1994; principal
and unpaid interest due on June 30, 1999 $ 4,500,000 $ 4,500,000
Term note payable to a bank, due in quarterly principal
installments of $43,750 beginning January 1, 1996, plus
interest at the bank's prime rate (9% and 8.25% at June 30,
1995 and 1996) plus 1.5%, all due in October 1999 700,000 612,500
Senior secured notes payable with interest payments due at
14% semi-annually in arrears on January 15 and July 15 of
each year; principal and unpaid interest due on July 15, 2002 60,000,000 60,000,000
Subordinated seller note payable with interest payments due
at 10% semi-annually in arrears beginning on November 15,
1996; principal amount payable in five annual installments
of $115,294 each beginning on May 10, 1997 576,470
Term note payable to a bank, due in quarterly installments of
$65,000 each, beginning on October 1, 1996, plus interest at
the bank's prime rate (8.25% at June 30, 1996) plus 1.5%,
all due in July 2001 1,300,000
Other long-term obligations 384,983 591,686
----------- -----------
65,584,983 67,580,656
Current maturities (206,035) (705,006)
Unamortized original discount (1,110,495) (952,479)
----------- -----------
$64,268,453 $65,923,171
----------- -----------
----------- -----------
</TABLE>
Long-term obligations also include the non-current portion of severance
agreements of $257,650 and $697,387 at June 30, 1995 and 1996, respectively
(see Note 16).
On February 10, 1995, the Company completed its offering of $60 million in
senior secured notes ($58,828,050 net of the original issue discount) to
certain accredited investors. The notes were issued with detachable
warrants to purchase 938,610 shares of the Company's common stock for $0.01
per share. The fair market value of these warrants at the date of issuance
was $1,171,950. The value of the warrants is included in shareholders'
equity on the accompanying consolidated balance sheet (net of issuance
costs).
39
<PAGE>
The senior secured notes bear interest at a stated rate equal to 14% of
their face value. However, the original issue discount related to the
common stock purchase warrants, together with deferred financing costs
related to the offering, result in an effective interest rate of
approximately 15.3%. The senior secured notes are secured by liens on
substantially all of the Company's fixed assets and certain intangible
assets.
The wholly owned subsidiary has guaranteed the debt related to the $60
million senior secured notes. The guarantee is full and unconditional.
In addition, the senior notes are secured by a pledge of the
subsidiary's capital stock.
Covenants contained in the senior secured note agreement limit the amount
the Company may borrow under its revolving line of credit agreement to the
lesser of $20 million or the maximum advances allowed under the line of
credit agreement (see Note 8), limit the amount of indebtedness the Company
may incur under capital lease or other equipment financing agreements to $3
million in each of the fiscal years ending June 30, 1996 and 1997, and
limit the amount of indebtedness the Company may incur in connection with
the acquisition of another company or companies. The agreement also places
limits on, among other things, the amount of operating lease commitments
the Company may enter under lease agreements not in effect at February 10,
1995, the payment of dividends and other payments between the Company and
its subsidiary, the payment of dividends to third parties, and the sale of
Company assets. The Company was in compliance with all covenants relating
to its senior secured notes as of June 30, 1995 and 1996.
On February 10, 1995, pursuant to the completion of the senior secured note
issuance, all of the term loans, equipment financing loans, and
subordinated notes payable, except for the subordinated seller note
payable, were repaid. This prepayment resulted in an extraordinary charge
of $2,943,080, net of income tax benefit of $1,477,156. The charge
consisted of $1,103,529 of cash prepayment premiums with the balance of
$3,316,707, representing the write-off of deferred loan costs associated
with the extinguished debt.
Maturities of long-term obligations for the next five years are as follows:
YEAR ENDING
JUNE 30,
1997 $ 705,006
1998 760,727
1999 5,158,987
2000 515,736
2001 375,200
Thereafter 60,065,000
-----------
Total $67,580,656
-----------
-----------
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its manufacturing and warehousing facilities
under operating leases that, in some cases, require the Company to pay real
estate taxes and insurance. In addition, the Company leases certain
automobiles, trucks and equipment under operating leases.
40
<PAGE>
The following is a summary of future minimum rental payments required under
operating leases as of June 30, 1996:
YEAR ENDING
JUNE 30,
TOTAL
1997 $ 2,580,959
1998 2,212,288
1999 1,949,546
2000 995,640
2001 766,796
Thereafter 439,864
-----------
Total $ 8,945,093
-----------
-----------
Rental expense was $496,280, $1,308,876 and $1,499,029 for the years ended
June 30, 1994, 1995 and 1996, respectively.
On July 1, 1994, the Company began subleasing a manufacturing facility
from a customer for 60 months at a rate of $23,781 per month.
The Company has entered into various long-term contracts committing it
to manufacture specified product amounts in the ordinary course of
business for certain customers in connection with its business
operations.
At June 30, 1996, the Company has outstanding commitments to purchase
approximately $2.5 million for manufacturing machinery and equipment and
molds.
One of the Company's leased facilities is part of a site that is listed on
the CERCLIS database of environmentally impacted sites. If the site
becomes subject to an active environmental remediation effort, the Company
may be asked to participate in payment of related costs. However, since
the CERCLIS listing relates to activities of a former occupant, and the
Company has not received any notification of any action to place the site
on the National Priorities List of Superfund sites nor has the Company
received any notice that it or any other parties have been named
Potentially Responsible Parties ("PRP"), no liability has been accrued.
Due to the uncertainties inherent in environmental regulation, the Company
could be named a PRP and be required to participate in costs related to
remediation if the site were moved to the list of Superfund sites, or if
active remediation efforts were otherwise required. However, the Company
has obtained indemnification from its landlord with respect to payment of
remediation costs related to preexisting contamination if the site were
placed on the National Priorities List of Superfund sites and environmental
remediation costs were to occur.
41
<PAGE>
11. REDEEMABLE STOCK AND WARRANTS
Redeemable stock and warrants consist of the following:
<TABLE>
<CAPTION>
BALANCE BALANCE
JUNE 30, JUNE 30,
1994 ISSUANCES RETIREMENTS ACCRETION 1995
<S> <C> <C> <C> <C> <C>
Class B common stock, par value $0.001 per
share; 600,000 shares authorized at June 30,
1994; all outstanding shares were purchased and
retired by the Company in 1995. $ 236 $ (236)
Additional paid-in capital - Class B common stock 164,764 (649,764) $485,000
Class A warrant to purchase 1,480,769 shares
of Class A common stock at a purchase of
$0.01 per share; expires June 30, 2004 313,000 57,000 $370,000
Class B warrant to purchase 1,365,734 shares
of Class A common stock at a
purchase price of $0.01 per share; expires
June 30, 2004
Class C warrant to purchase 932,884 shares
of Class A common stock at a purchase price
of $0.01 per share; expires June 30, 2004 197,000 36,000 233,000
Class E warrant to purchase an indeterminate
number of shares of common stock. The
number of shares purchasable will be determined
at the time of exercise and is dependent on a
defined rate of return to its holder $20,000 20,000
-------- ------- --------- -------- --------
$675,000 $20,000 $(650,000) $578,000 $623,000
-------- ------- --------- -------- --------
-------- ------- --------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
BALANCE
JUNE 30,
ISSUANCES RETIREMENTS ACCRETION 1996
<S> <C> <C> <C> <C>
Class B common stock, par value $0.001 per
share; 600,000 shares authorized at June 30,
1994; all outstanding shares were purchased and
retired by the Company in 1995.
Additional paid-in capital - Class B common stock
Class A warrant to purchase 1,480,769 shares
of Class A common stock at a purchase of
$0.01 per share; expires June 30, 2004 $148,000 $518,000
Class B warrant to purchase 1,365,734 shares
of Class A common stock at a
purchase price of $0.01 per share; expires
June 30, 2004
Class C warrant to purchase 932,884 shares
of Class A common stock at a purchase price
of $0.01 per share; expires June 30, 2004 92,000 325,000
Class E warrant to purchase an indeterminate
number of shares of common stock. The
number of shares purchasable will be determined
at the time of exercise and is dependent on a
defined rate of return to its holder 20,000
-------- -------- -------- --------
$ 0 $ 0 $240,000 $863,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
42
<PAGE>
In 1995, the Company purchased and retired all of its outstanding shares of
Class B common stock for $650,000.
The holders of the Company's Series A preferred stock and Series B
preferred stock hold four warrants (the Class A, Class B, Class C and Class
E warrants) to purchase Class A common stock for $0.01 per share. The
number of shares and purchase prices applicable to the four warrants may
vary based upon provisions in the individual warrants that may be
applicable at the time of exercise. The holders of the Class A, Class B
and Class C warrants may tender all or a portion of the warrants and
warrant shares held by it for purchase by the Company at any time from or
after July 1, 2005 until May 12, 2014. The holders of the Class E warrant
may, at any time upon or after the occurrence of a disposition event,
require the Company to repurchase all of the outstanding Class E warrant
shares. A disposition event is defined as any liquidation of the Company,
sale of all or substantially all of the assets of the Company, any
qualified public offering of common stock, or any transaction of merger or
consolidation which results in the shareholders of the Company not
controlling at least a majority of the outstanding equity securities of the
surviving corporation. The tender price will be the fair market value of
the warrants at the date of the tender transaction. The warrants were
recorded at their estimated fair value at the date of purchase. The
difference between the carrying value of the warrants and the estimated
fair value of the warrants at the earliest possible date of tender is being
accreted to the warrants. The estimated fair value of the warrants and the
warrant shares at the earliest possible date of tender was $1.00 and $1.25
per share at June 30, 1995 and 1996, respectively. The estimated fair
value of the warrants and the warrant shares was determined based on the
current fair market value of the Company's equity securities as determined
in arm's length transactions during the year.
12. CAPITAL STOCK AND STOCK BASED COMPENSATION
In October 1994, the Company's Board of Directors declared a 2.2-for-one
stock split of its common stock.
The Series A preferred stock is nonvoting and accrues dividends payable in
kind quarterly until June 30, 2003 at the rate of 8% per annum on the
liquidation value of $1.00 per share plus accrued and unpaid dividends.
From July 1, 2003, dividends will accrue at the rate of 10% per annum on
the liquidation value, and the dividend rate will increase on each July 1
thereafter by 2% per annum. Unpaid dividends on the Series A preferred
stock are cumulative and accrue interest on a daily basis, and interest is
payable at a rate of 2% per annum above the then current dividend rate
during the first year that any such dividends are in arrears. Thereafter,
the interest rate will increase by 1% annually.
All of the Company's issued and outstanding Series A preferred stock is
owned by an affiliate of a financial institution. The Company may from
time to time redeem all or any portion of the Series A preferred stock then
outstanding at the liquidation value.
The Series B preferred stock is nonvoting and accrues dividends payable in
kind on a daily basis until July 1, 2003, at a rate of 10% per annum on the
liquidation value of $1.00 per share plus accrued and unpaid dividends.
From July 1, 2003, dividends will accrue at a rate of 12% per annum on the
liquidation value, and the dividend rate will increase on each July 1
thereafter by 2% per annum. Unpaid dividends on the Series B preferred
stock are cumulative and accrue interest on a daily basis, and interest is
payable at a rate of 2% per annum above the then current dividend rate
during the first year that any such dividends are in arrears. Thereafter,
the interest rate will increase by 1% annually. The Company may from time
to time redeem all or any portion of the Series B preferred stock then
outstanding at liquidation value.
43
<PAGE>
The Series B preferred stock is convertible at any time at the option of
the holder into the Company's Class A common stock. The number of shares
of Class A common stock obtainable through conversion will be determined by
dividing the liquidation value of the Series B preferred shares by the fair
market value per share of the Class A common stock on the date of
conversion.
The Class D Warrants permit the holders to purchase an aggregate of 384,335
shares of common stock for a price of $0.01 per share. The warrants become
exercisable on or before the earlier of December 31, 2005, six years from
the date on which 2,500,000 aggregate shares of Series B preferred stock
have been redeemed or otherwise repurchased, or the occurrence of a
disposition event. A disposition event is defined as any liquidation of
the Company, any qualified public offering, or any transaction of merger or
consolidation which results in the stockholders of the Company not
controlling at least a majority of the outstanding equity securities of the
surviving corporation. The Class D Warrants were recorded at $480,000,
which equaled their estimated fair value at the date of issuance based on
fair market value of the underlying equity securities as determined in
arm's length transactions.
The Company has reserved 755,738 shares of common stock for issuance under
its Amended and Restated 1994 Stock Option Plan. During 1995 and 1996 the
Company granted, to certain key employees, options to purchase 367,076 and
297,500 shares, respectively, of its common stock for prices ranging from
$1.00 to $1.25 per share, the fair market value at the respective dates of
grant, as determined by the Company's Board of Directors, based upon recent
arm's length transactions. The options vest and become exercisable in
installments over five years, and expire five and one-half years after
their date of grant. None of the options granted under the 1994 Stock
Option Plan expired during 1995, nor were any of the outstanding options
exercisable at June 30, 1995. During 1996, options to purchase 46,200
shares were forfeited in connection with the termination of certain
employees, and options to purchase 120,471 shares became exercisable. As
of June 30, 1996, no options have been exercised.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123) which will be effective for the Company in its
fiscal year ending June 30, 1997. SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value
of the equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company
will continue to apply APB Opinion No. 25 to its stock-based compensation
awards to employees and will disclose the required pro forma effect on net
income and earnings per share.
13. PLANT RECONFIGURATION COSTS
Plant reconfiguration costs include charges incurred with the Company's
Houston operations retrofitting of manufacturing facilities and changes in
both the quality and types of resins maintained in inventory, in accordance
with management's new operating policies. Such charges are composed of the
following items for the year ended June 30, 1994:
COST OF OPERATING
SALES EXPENSES
Disposal/sale of resin and finished goods $592,000
Plant consolidation costs 238,435
Management consulting $35,241
Operations review 31,000
-------- -------
$830,435 $66,241
-------- -------
-------- -------
44
<PAGE>
14. INCOME TAXES
The (benefit) provision for income taxes is composed of the following:
JUNE 30,
----------------------------------------
1994 1995 1996
Current $179,449 $(1,012,370) $ (801,666)
Deferred 208,907 (864,811) (796,089)
-------- ----------- -----------
$388,356 $(1,877,181) $(1,597,755)
-------- ----------- ------------
-------- ----------- ------------
The Company's (benefit) provision for income taxes is reconciled to the
statutory tax rate as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------------------------------------
1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Statutory income tax
provision $241,842 34.0 % $(2,208,739) (34.0)% $(3,952,500) (34.0)%
Goodwill and other
permanent differences
from sale of
distribution operations 2,313,000 19.9%
Permanent differences 102,453 11.8 % 235,422 3.7 % 454,000 3.9%
Other 44,061 6.2 % 96,136 1.5 % (412,255) (3.5)%
-------- -------- ----------- ------ --------- ---------
$388,356 52.0 % $(1,877,181) (28.8)% $(1,597,755) (13.7)%
-------- -------- ----------- ------ -------- ---------
-------- -------- ----------- ------ -------- ---------
</TABLE>
The Company's significant temporary differences, which result in deferred
tax assets and liabilities as of June 30, 1996, are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
TEMPORARY ASSETS (LIABILITIES)
DIFFERENCES CURRENT LONG-TERM
<S> <C> <C> <C>
Tax depreciation in excess of book $(3,053,283) $ $(1,246,692)
Capitalized leases 569,629 196,596
Inventory cost capitalization 341,867 $138,929 332,026
Accrued severance 1,044,783 38,775
State income tax 338,356 (3,900) 118,940
Reserves and allowances 93,600 37,086
Other 125,021 (14,568) 56,734
Purchase accounting asset revaluation (6,412,900) (339,207) (2,165,419)
Net operating loss 3,339,000 1,368,990
---------- --------- ---------
$(3,613,927) $(142,885) $(1,338,825)
---------- --------- ---------
---------- --------- ---------
Total deferred assets $ 2,288,076
Total deferred liabilities (3,769,786)
---------
$(1,481,710)
---------
---------
</TABLE>
The Company's significant temporary differences, which result in deferred
tax assets and liabilities as of June 30, 1995, are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
TEMPORARY ASSETS (LIABILITIES)
DIFFERENCES CURRENT LONG-TERM
<S> <C> <C> <C>
Tax depreciation in excess of book $(2,353,659) $ (935,193)
Capitalized leases (311,923) (107,437)
Inventory cost capitalization 721,601 $ 293,062
Accrued severance 1,500,000 443,880 98,750
State income tax 300,656 109,198 (6,972)
Reserves and allowances 364,078 131,041
Other (295,368) (160,093) 81,095
Purchase accounting asset revaluation (10,451,454) (361,055) (3,527,977)
Net operating loss 3,360,038 419,976 788,095
----------- ------- ----------
$(7,166,031) $ 876,009 $(3,609,639)
=========== ======== ===========
Total deferred assets $ 2,365,097
Total deferred liabilities (5,098,727)
-----------
$(2,733,630)
==========
</TABLE>
45
<PAGE>
15. RELATED PARTIES
In October 1994, the Company began leasing its Houston warehouse from a
partnership, of which a member of the Board of Directors is the managing
partner, that had been previously assigned the Company's rights to
purchase the property. The terms of the five-year lease require annual
lease payments aggregating $66,000, adjusted periodically for changes in
the Consumer Price Index, and provide for an option to acquire the
property for $818,000 at the end of the lease term. Rental expense of
$49,295 and $66,606 related to this lease was included in cost of sales
for 1995 and 1996, respectively, in the accompanying consolidated
statements of operations.
The Company leases its Ottawa manufacturing facility and its Leipsic
warehouse under operating leases from a related party. The lease agreements
for these facilities provide for annual rental payments of approximately
$390,000 for an initial term of five years with two five-year renewal
options. The leases also provide the Company with the option to purchase
the buildings at any time during the lease term, including option periods,
for a minimum purchase price of $1,100,000 and $3,000,000 for the Ottawa
facility and the Leipsic facility, respectively. Rental expense of $446,847
and $506,999 related to these leases was included in cost of sales for 1995
and 1996, respectively, in the accompanying consolidated statements of
operations.
16. EXECUTIVES' SEVERANCE AGREEMENTS
During fiscal year 1995, the Company reached separate agreements with two
executives, which resulted in the termination of their employment with the
Company. The Company has recorded charges totaling approximately $3,344,000
in the year ended June 30, 1995, reflecting the total expense related to
these terminations. These charges are included in selling, general and
administrative expenses in the accompanying consolidated statement of
operations and are composed of approximately $1,500,000 of future
obligations to the two executives and the write-off of the unamortized
portion of compensation paid to one of the executives in February 1995, of
approximately $1,844,000 ($2,000,000 net of accumulated amortization of
approximately $156,000). The future obligations to the two executives are
due and payable in monthly installments, which total $1,257,650 in 1996 and
$257,650 in 1997, and are included in accrued liabilities and long-term
obligations, respectively, in the accompanying consolidated balance sheet at
June 30, 1995.
One of the executives had a grant of options to purchase 153,263 shares of
the Company's common stock for $0.001 per share, in connection with the
commencement of his employment in February 1995. The options were scheduled
to vest over five years, with 30,653 shares vesting immediately. In
connection with the vesting of these options in 1995, the Company recognized
compensation expense of approximately $36,000, which is included in selling,
general and administrative expenses in the accompanying consolidated
statements of operations for the year ended June 30 ,1995. The expense was
determined based on the number of options that vested and the difference
between the aggregate exercise price of the options and the fair market
value of the underlying shares as of the date the options vested. In
connection with the termination of this executive's employment, the options
were canceled and the Company agreed to issue 75,000 shares of its common
stock. The Company recognized additional compensation expense of $57,500
relating to the issuance of such shares.
During fiscal year 1996, in connection with the reorganization (see Note 3),
the Company reached an agreement with an executive which resulted in the
termination of his employment with the Company effective July 1, 1996. The
Company has recorded charges of $793,496 in the year ended June 30, 1996,
reflecting the total expense related to this termination. This charge is
included in reorganization costs in the accompanying consolidated statement
of operations. The future obligations to the executive are due and payable
in monthly installments of $15,513, commencing on July 31, 1996. The
46
<PAGE>
present value of payments due in 1997 of $96,109 and the remaining
obligation of $697,387 are included in accrued liabilities and long-term
obligations, respectively, on the accompanying consolidated balance sheet at
June 30, 1996.
In connection with the commencement of his employment in January 1995, the
executive was granted options to purchase 140,738 shares of the Company's
common stock for $1.00, the fair market value at the date of grant. Upon the
termination of his employment, the options were canceled based on the terms
in the executive's severance agreement.
*****
47
<PAGE>
(a)(2)
(a)(3)
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
48
<PAGE>
2.1 Stock Purchase Agreement, dated as of May 1, 1996, between RXI
Holdings, Inc., RXI Plastics, Inc., Vanguard Plastics, Inc. and the
1989 Steil Family Trust (incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated May 9, 1996 (the
"May 1996 8-K")).
2.2 Stock Purchase Agreement, dated as of May 15, 1996, between RXI
Holdings, Inc, RXI Plastics, Inc. and Texberry Acquisition, Inc.
(incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K dated June 6, 1996 (the "June 1996 8-K")).
3.01 Third Amended and Restated Certificate of Incorporation of RXI,
Holdings, Inc., dated as of February 21, 1995 (incorporated by
reference to Exhibit 3.01 to the Company's Registration Statement
on Form S-4 (the "Registration Statement"), as amended, filed with
the Securities and Exchange Commission ("SEC") on July 7, 1995
(Registration No. 33-94420)).
3.02 Bylaws of RXI Holdings, Inc., adopted as of June 14, 1993, and all
Amendments thereto (incorporated by reference to Exhibit 3.02 to
the Registration Statement).
4.01 Purchase Agreement for 3,750,000 Shares, $.001 Par Value Series A
Preferred Stock and Warrants to Purchase up to 1,022,727 Shares of
Common Stock of RXI Holdings, Inc., and BT Capital Corporation,
dated as of June 17, 1993 (incorporated by reference to Exhibit
4.01 to the Registration Statement).
4.02 Stock Purchase Agreement for 4,462,500 Shares, $.001 Par Value
Series A Preferred Stock and Warrants to Purchase up to 993,968
Shares of Common Stock of RXI Holdings, Inc., by and between RXI
Holdings, Inc. and BT Capital Corporation, dated as of May 12, 1994
(incorporated by reference to Exhibit 4.02 to the Registration
Statement).
4.03 Second Amended and Restated Class A Warrant No. 3, dated as of
February 9, 1995, to purchase 1,480,769 shares of Class A Common
Stock of RXI Holdings, Inc., par value $.001, for the purchase
price of $.01 per share, held by BT Capital Corporation
(incorporated by reference to Exhibit 4.03 to the Registration
Statement).
4.04 Second Amended and Restated Class B Warrant No. 3, dated as of
February 9, 1995, to purchase 1,365,734 shares of Class A Common
Stock of RXI Holdings, Inc., par value $.001, for the purchase
price of $.01 per share, held by BT Capital Corporation
(incorporated by reference to Exhibit 4.04 to the Registration
Statement).
4.05 Amended and Restated Class C Warrant No. 3, dated as of February 9,
1995, to purchase 932,884 shares of Class A Common Stock of RXI
Holdings, Inc., par value $.001, for the purchase price of $.01 per
share, held by BT Capital Corporation (incorporated by reference to
Exhibit 4.05 to the Registration Statement).
4.06 Second Amended and Restated Stockholders Agreement, dated as of
November 1, 1994, among RXI Holdings, Inc., RXI Management
Corporation, BT Capital Corporation, and Patrick Holdings, Inc.
(incorporated by reference to Exhibit 4.06 to the Registration
Statement).
4.07 Letter Agreement between RXI Holdings, Inc. and Patrick Holdings,
Inc., dated as of December 28, 1994, modifying the Second Amended
and Restated Stockholders Agreement (incorporated by reference to
Exhibit 4.07 to the Registration Statement).
4.08 Letter Agreement between Thomas F. Hudak and RXI Holdings, Inc.,
dated as of December 30, 1994, modifying the Stock Option Agreement
and the Second Amended and Restated Stockholders Agreement
(incorporated by reference to Exhibit 4.08 to the Registration
Statement).*
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
49
<PAGE>
4.09 Letter Agreement between RXI Holdings, Inc. and Thomas F. Hudak,
dated as of December 28, 1994, modifying the Stock Option Agreement
and the Second Amended and Restated Stockholders Agreement
(incorporated by reference to Exhibit 4.09 to the Registration
Statement).
4.10 Letter Agreement between RXI Holdings, Inc. and Harvey Casey, dated
as of December 28, 1994, modifying the Stock Option Agreement and
the Second Amended and Restated Stockholders Agreement
(incorporated by reference to Exhibit 4.10 to the Registration
Statement).
4.11 1995 Securities Purchase Agreement for 4,500,000 Shares, $.001 Par
Value Series B Preferred Stock and Warrants to Purchase Shares of
Common Stock of RXI Holdings, Inc. by and between RXI Holdings,
Inc. and BT Capital Corporation, dated as of January 31, 1995
(incorporated by reference to Exhibit 4.11 to the Registration
Statement).
4.12 Form of Class D Warrant to purchase shares of Common Stock of RXI
Holdings, Inc., par value $.001, for the purchase price of $.01 per
share (incorporated by reference to Exhibit 4.12 to the
Registration Statement).
4.13 Form of Class E Warrant to purchase Common Stock of RXI Holdings,
Inc., par value $.001, for the purchase price of $.001 per share
(incorporated by reference to Exhibit 4.13 to the Registration
Statement).
4.14 Second Amended and Restated Registration Rights Agreement, dated as
of February 10, 1995, by and between RXI Holdings, Inc. and BT
Capital Corporation (incorporated by reference to Exhibit 4.14 to
the Registration Statement).
4.15 Subscription Agreement, dated as of January 31, 1995, among RXI
Management Corporation, Patrick Holdings, Inc., and RXI Holdings,
Inc. (incorporated by reference to Exhibit 4.15 to the Registration
Statement).
4.16 Purchase Agreement of 60,000 Units Consisting of $60,000,000 14%
Senior Notes due 2002 and Warrants to Purchase 938,610 Shares of
Common Stock of RXI Holdings, Inc., dated as of February 10, 1995,
between RXI Holdings, Inc. and BT Securities Corporation
(incorporated by reference to Exhibit 4.16 to the Registration
Statement).
4.17 Indenture of RXI Holdings, Inc. and the Subsidiary Guarantors named
therein, dated as of February 10, 1995, for $60,000,000 14% Senior
Notes Due 2002, Series A and Series B, with U.S. Trust Company of
California, N.A. as Trustee (incorporated by reference to Exhibit
4.17 to the Registration Statement).
4.18 First Amendment to Indenture, dated as of July 1, 1995, among RXI
Holdings, Inc., Subsidiary Guarantors and U.S. Trust Company of
California, N.A., as trustee (incorporated by reference to Exhibit
4.17.01 to the Registration Statement.
4.19 Second Amendment to Indenture, dated as of September 7, 1995, among
RXI Holdings, Inc., Subsidiary Guarantors and U.S. Trust Company of
California, N.A., as trustee (incorporated by reference to Exhibit
4.17.02 to the Registration Statement).
4.20 Form of RXI Holdings, Inc. 14% Senior Note due 2002 (incorporated
by reference to Exhibit 4.18 to the Registration Statement).
4.21 A/B Exchange Registration Rights Agreement, dated as of February
10, 1995, by and among RXI Holdings, Inc. and Continental Plastics
Incorporated, Patrick Plastics, Inc., and Texberry Container
50
<PAGE>
Corporation, as Subsidiary Guarantors, and BT Securities
Corporation related to the 14% Senior Notes due 2002 (incorporated
by reference to Exhibit 4.19 to the Registration Statement).
4.22 Warrant Agreement, dated as of February 10, 1995, by and among RXI
Holdings, Inc., RXI Management Corporation, BT Capital Corporation,
Leon Farahnik, and U.S. Trust Company of California, N.A.
(incorporated by reference to Exhibit 4.20 to the Registration
Statement).
4.23 Form of Warrant, related to the warrants issued pursuant to the
Warrant Agreement, dated as of February 10, 1995, expiring July 15,
2002, to purchase shares of Common Stock of RXI Holdings, Inc., par
value $.001, for the purchase price of $.01 per share (incorporated
by reference to Exhibit 4.21 to the Registration Statement).
9.01 Irrevocable Proxy of RXI Management Corporation, dated as of June
17, 1993, in favor of Leon Farahnik (incorporated by reference to
Exhibit 9.01 to the Registration Statement).
10.01 License Agreement, dated as of August 1, 1983, between Bettix
Limited and Texberry Container Corporation (incorporated by
reference to Exhibit 10.01 to the Registration Statement).
10.02 First Amendment to License Agreement, dated as of November 24,
1984, between Bettix Limited and Texberry Container Corporation
(incorporated by reference to Exhibit 10.02 to the Registration
Statement).
10.03 Royalty Sharing Agreement, dated as of December 13, 1990, between
Bettix Limited and Texberry Container Corporation (incorporated by
reference to Exhibit 10.03 to the Registration Statement).
10.04 License Agreement, dated as of December 13, 1990, between Texberry
Container corporation and Richards Packaging Inc. (incorporated by
reference to Exhibit 10.04 to the Registration Statement).
10.05 Purchase Agreement, dated as of December 10, 1993, between Texberry
Container Corporation and Golden Cat Corporation (incorporated by
reference to Exhibit 10.05 to the Registration Statement).
10.06 Sublease Agreement, dated as of March 1, 1994, between Golden Cat
Corporation and Texberry Container Corporation for property at 550
Highway A-B, Cape Girardeau, Missouri (incorporated by reference to
Exhibit 10.06 to the Registration Statement).
10.07 Lease, dated as of October 14, 1994, between M.S.F. Estrella
Property Co. and Texberry Container Corporation for property at
6830 Kirbyville Road, Houston, Texas (incorporated by reference to
Exhibit 10.07 to the Registration Statement).
10.08 Lease, dated as of May 12, 1994, between Patrick Plastics, Inc.
(formerly known as RXI/Patrick, Inc.) and Patrick Holdings, Inc.
(formerly known as Patrick Plastics, Inc.) for property at 725
North Locust Street, Ottawa, Ohio (incorporated by reference to
Exhibit 10.08 to the Registration Statement).
10.09 Lease, dated as of May 12, 1994, between Patrick Plastics, Inc.
(formerly known as RXI/Patrick, Inc.) and Patrick Holdings, Inc.
(formerly known as Patrick Plastics, Inc.) for property at West
Main Street and County Road 7, Leipsic, Ohio (incorporated by
reference to Exhibit 10.09 to the Registration Statement).
10.10 Employment Agreement, dated as of June 15, 1993, between RXI
Holdings, Inc. and Leon Farahnik (incorporated by reference to
Exhibit 10.10 to the Registration Statement).*
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
51
<PAGE>
10.11 Employment Agreement, dated as of June 15, 1993, between RXI
Holdings, Inc. and Marvin Liebman (incorporated by reference to
Exhibit 10.11 to the Registration Statement).*
10.12 Employment Agreement, dated as of June 15, 1993, between RXI
Holdings, Inc. and Richard Zirkler (incorporated by reference to
Exhibit 10.12 to the Registration Statement).*
10.13 Employment Agreement, dated as of May 12, 1994, between Patrick
Plastics, Inc. (formerly known as RXI/Patrick, Inc.) and Robert S.
Patrick (incorporated by reference to Exhibit 10.13 to the
Registration Statement).*
10.14 Settlement and Consulting Agreement, dated as of December 1995,
between Patrick Plastics, Inc. and Robert S. Patrick (incorporated
by reference to Exhibit 10.13.01 to Post-Effective Amendment No. 1
to the Registration Statement filed with the SEC on January
16,1996).*
10.15 Employment Agreement, dated as of January 1, 1995, between Texberry
Container Corporation and Harvey Casey and amendment attached
thereto (incorporated by reference to Exhibit 10.14 to the
Registration Statement).*
10.16 Severance Agreement, dated July 12, 1996, between Plastics, Inc.
and Harvey Casey.*
10.17 Employment Agreement, dated as of February 10, 1995, between RXI
Holdings, Inc., Continental Plastics Incorporated and Thomas F.
Hudak (incorporated by reference to Exhibit 10.15 to the
Registration Statement).*
10.18 Conceptual Agreement, dated as of July 18, 1995, among Thomas F.
Hudak, RXI Holdings, Inc. and Continental Plastics Incorporated in
reference to Thomas F. Hudak's resignation (incorporated by
reference to Exhibit 10.15.01 to the Registration Statement).*
10.19 Employment Agreement, dated as of June 7, 1993, between Texberry
Container Corporation, as successor in interest to RXI/Newco
Acquisition Corp. I, and Joseph Borden (incorporated by reference
to Exhibit 10.16 to the Registration Statement).*
10.20 Modification to Employment Agreement, dated as of August 4, 1995,
between Texberry Container Corporation and Joseph Borden
(incorporated by reference to Exhibit 10.16.01 to the
Registration Statement).*
10.21 Guaranty Agreement, dated as of August 4, 1995, by RXI Holdings,
Inc., in favor of Joseph Borden (incorporated by reference to
Exhibit 10.16.02 to the Registration Agreement).*
10.22 RXI Holdings, Inc. 1994 Stock Option Plan, adopted as of October
25, 1994, and Amendment No. 1, dated as of December 20, 1994,
attached thereto (incorporated by reference to Exhibit 10.17 to the
Registration Statement).
10.23 Stock Option Agreement, dated as of January 1, 1995, between RXI
Holdings, Inc. and Harvey Casey (incorporated by reference to
Exhibit 10.18 to the Registration Statement).*
10.24 Stock Option Agreement, dated as of February, 10, 1995, between RXI
Holdings, Inc. and Thomas F. Hudak (incorporated by reference to
Exhibit 10.19 to the Registration Statement).*
10.25 Option Agreement, dated as of June 17, 1993, between BT Capital
Corporation and RXI Management Corporation (incorporated by
reference to Exhibit 10.20 to the Registration Statement).
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
52
<PAGE>
10.26 Amended and Restated Termination Agreement, dated as of October 25,
1994, between BT Capital Corporation and RXI Management Corporation
(incorporated by reference to Exhibit 10.21 to the Registration
Statement).
10.27 BT Capital Corporation Letter, dated as of June 17, 1993, in favor
of RXI Holdings, Inc. (incorporated by reference to Exhibit 10.22
to the Registration Statement).
10.28 Financing Agreement, dated as of February 10, 1995, between The CIT
Group/Business Credit, Inc. and Texberry Container Corporation,
Patrick Plastics, Inc. and Continental Plastics Incorporated
(incorporated by reference to Exhibit 10.23 to the Registration
Statement).
10.29 Amendment to Financing Agreement, dated as of September 22, 1995,
between The Cit Group/Business Credit, Inc. and Texberry Container
Corporation, Patrick Plastics, Inc. and Continental Plastics
Incorporated (incorporated by reference to Exhibit 10.22.01 to the
Registration Statement).
10.30 Pledge Agreement, dated as of February 10, 1995, by RXI Holdings,
Inc., in favor of U.S. Trust Company of California, N.A.
(incorporated by reference to Exhibit 10.24 to the Registration
Statement).
10.31 Promissory Note issued by Patrick Plastics, Inc. (formerly known as
RXI/Patrick, Inc.), dated as of May 12, 1994, in favor of Patrick
Holdings, Inc. (formerly known as Patrick Plastics, Inc.) in the
principal sum of $4,500,000, due on June 30, 1999 (incorporated by
reference to Exhibit 10.25 to the Registration Statement).
10.32 Promissory Note issued by RXI Plastics, Inc., dated as of May 31,
1996, in favor of RXI Holdings, Inc. in the principal sum of
$24,270,044.94, due January 31, 2002.
10.33 Promissory Note issued by RXI Plastics, Inc., dated as of May 31,
1996, in favor of RXI Holdings, Inc. in the principal sum of
$15,689,495.72, due January 31, 2002.
10.34 Promissory Note issued by RXI Plastics, Inc., dated as of May 31,
1996, in favor of RXI Holdings, Inc. in the principal sum of
$13,911,379.91, due January 31, 2002.
10.35 Security Agreement, dated as of March 31, 1995, among RXI Holdings,
Inc., Continental Plastics Incorporated, Patrick Plastics, Inc. and
Texberry Container Corporation, in favor of U.S. Trust Company of
California, N.A. (incorporated by reference to Exhibit 10.29 to the
Registration Statement).
10.36 Deed of Trust, Assignment of Rents and Fixture Filing, dated as of
March 30, 1995, between Continental Plastics Incorporated, James T.
McClure and U.S. Trust Company of California, N.A. (incorporated by
reference to Exhibit 10.31 to the Registration Statement).
10.37 Trademark Security Agreement, dated as of March 31, 1995, between
Continental Plastics Incorporated and U.S. Trust Company of
California, N.A. (incorporated by reference to Exhibit 10.32 to the
Registration Statement).
53
<PAGE>
10.38 Patent Security Agreement, dated as of March 31, 1995, between
Continental Plastics Incorporated and U.S. Trust Company of
California, N.A. (incorporated by reference to Exhibit 10.34 to the
Registration Statement).
10.39 Letter Agreement, dated as of September 22, 1995, among Texberry
Container Corporation, Patrick Plastics, Inc., Continental Plastics
Corporation and The CIT Group/Business Credit, Inc. regarding a
$700,000 loan to Patrick Plastics, Inc. (incorporated by reference
to Exhibit 10.36 to the Registration Statement).
10.40 Mortgage, Security Agreement and Financing Statement, dated as of
July 25, 1995, between Patrick Plastics, Inc. and The CIT
Group/Business Credit, Inc. (incorporated by reference to Exhibit
10.38 to the Registration Statement).
10.41 Master Lease Agreement, dated as of September 6, 1995, between USL
Capital Corporation and Texberry Container Corporation
(incorporated by reference to Exhibit 10.39 to the Registration
Statement).
10.42 Amendment No. 1 to Master Lease Agreement, dated as of September 6,
1995, between USL Capital Corporation and Texberry Container
Corporation (incorporated by reference to Exhibit 10.40 to the
Registration Statement).
10.43 Guaranty, dated as of September 6, 1995, between RXI Holdings,
Inc., Patrick Plastics, Inc. and Continental Plastics, Inc., as
Guarantors, USL Capital Corporation as Lessor and Texberry
Container Corporation as Lessee (incorporated by reference to
Exhibit 10.41 to the Registration Statement).
10.44 Guaranty Agreement, dated as of June 5, 1996 by Kranson Industries,
Inc. for the benefit of RXI Plastics, Inc. (incorporated by
reference to Exhibit 2.4 to the June 1996 8-K).
10.45 Subordination Agreement, dated June 5, 1996, by and between
Texberry Acquisition, Inc., Bank One Indianapolis, NA, RXI
Plastics, Inc. and RXI Holdings, Inc. (incorporated by reference to
Exhibit 10.17 to the June 1996 8-K).
10.46 Escrow Agreement, dated June 5, 1996, by and between Texberry
Acquisitions, Inc., RXI Plastics, Inc., RXI Holdings, Inc. and
Mercantile Bank of St. Louis, NA (incorporated by reference to
Exhibit 10.18 to the June 1996 8-K).
12.01 Computation of Ratio of Earnings to Fixed Charges for RXI Holdings,
Inc. and Subsidiaries
21.01 Subsidiaries of RXI Holdings, Inc.:
RXI Plastics, Inc.
54
<PAGE>
(b) The following reports of Form 8-K were filed by the Company for the
quarter ended June 30, 1996:
(1) Report on Form 8-K, dated May 9, 1996, as amended on Form
8-K/A filed June 25, 1996, reporting the acquisition of Vanguard Plastics of
California, Inc.
(2) Report on Form 8-K, dated June 6, 1996, reporting the disposition
of Texberry Container Corp., including pro-forma financial statements reflecting
such disposition.
55
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RXI Holdings, Inc.
Date: October 14, 1996 By: /s/ Leon Farahnik
--------------------------------
Leon Farahnik
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: October 14, 1996 By: /s/ Leon Farahnik
--------------------------------
Leon Farahnik
Chairman of the Board and
Chief Executive Officer
Date: October 14, 1996 By: /s/ Marvin Liebman
--------------------------------
Marvin Liebman
Chief Financial Officer
Date: October 14, 1996 By: /s/ Emil Halimi
--------------------------------
Emil Halimi
Director
Date: October 14, 1996 By: /s/ Thomas Schneider
--------------------------------
Thomas Schneider
Director
Date: October 14, 1996 By: /s/ John J. Ghaznavi
--------------------------------
John J. Ghaznavi
Director
Date: October 14, 1996 By: /s/ Tom Richmond
--------------------------------
Tom Richmond
Director
56
<PAGE>
Exhibit 10.16
SEVERANCE AGREEMENT AND MUTUAL RELEASE
This Severance Agreement and Mutual Release (the "Agreement") is entered
into by and between Harvey Casey ("CASEY") and RXI Plastics, Inc. ("RXI").
For purposes of this Agreement, CASEY shall be defined to include Harvey
Casey, and anyone claiming or liable through him including, but not limited
to, his past, present, and future agents, attorneys, representatives, heirs,
executors, administrators, spouses, family, and the predecessors, successors,
and assigns of each of them.
For purposes of this Agreement, RXI shall be defined to include RXI
Plastics, Inc., and anyone claiming or liable through RXI Plastics, Inc.
including, but not limited to, any and all parents, divisions, subsidiaries,
affiliates, and/or other related entities of RXI Plastics, Inc. (whether or
not such entities are wholly-owned).
The EFFECTIVE DATE of this Agreement shall be seven (7) days after the
Agreement is signed by CASEY, on which date this Agreement becomes binding on
CASEY. In the event RXI signs this Agreement more than seven days after
CASEY signs this Agreement, then the EFFECTIVE DATE of this Agreement shall
be the date upon which RXI signs this Agreement.
RECITALS
WHEREAS, CASEY will, effective July 1, 1996, leave the employ of RXI and
RXI Holdings, Inc. and will no longer serve as an officer or director of
either entity as of said date;
WHEREAS, CASEY and RXI seek amicably to resolve and settle potential
disputes and/or potential claims between them;
WHEREAS, the execution, delivery and performance of this Agreement by RXI
has been duly and validly authorized by all necessary corporate action;
NOW THEREFORE, in return for the promises, consideration, mutual
covenants, agreements, and conditions provided for in this Agreement, which
CASEY and RXI acknowledge constitute the receipt of valuable consideration by
each of them, and intending to be legally bound, the parties agree as follows:
AGREEMENT
1. Provided CASEY complies with the provisions in Paragraphs 5.1
through 5.5 hereof through December 31, 1999, RXI hereby agrees to pay
CASEY the sum of $15,513.00 on the last day of each month commencing July
31, 1996 through and including June 30, 2002 (the "Payment Term"). In
the event of CASEY's death on or prior to December 31, 1998, RXI's
obligations under this Paragraph 1 shall cease 12 months after such death. In
the event of CASEY's death after December 31, 1998, RXI will continue to
make payments hereunder to CASEY's estate for the balance of the Payment
Term. In the event of CASEY's breach of this Agreement on or prior to
December 31, 1999, RXI's obligations under this
<PAGE>
Agreement will immediately cease. A breach of this Agreement subsequent to
December 31, 1999 will not cause RXI's obligations, under this Section 1,
to be terminated or suspended. The aforesaid sum is being paid in
settlement of the compensation obligations of RXI and is fully subject to
applicable taxes. RXI shall withhold all applicable taxes.
2. CASEY shall cease to be employed by RXI as of July 1, 1996 and
shall cease on such date to be a participant in all plans including health
and life insurance plans.
3. CASEY agrees to the cancellation in full of the Stock Option
Agreement with RXI Holdings, Inc., dated as of January 1, 1995 without
exercise of any options.
4. CASEY agrees not to bring any action against RXI which relates to,
arise out of, or results from CASEY's employment with RXI or the termination
thereof, whether under the Employment Agreement dated as of January 1,
1995, the Assignment and Assumption Agreement dated as of May 31, 1996, or
otherwise, except claims arising under this Agreement.
5.1 Except as permitted by RXI's Board, CASEY shall not divulge,
furnish, disclose or make accessible to anyone for use in any way any
confidential or secret knowledge or information of RXI or RXI Holdings, Inc.,
or any subsidiary of RXI Holdings, Inc., (collectively "Company") which
CASEY has acquired or become acquainted with while employed by RXI or
Texberry Container Corporation ("Texberry"), whether developed by himself
or by others, concerning any trade secrets, confidential or secret designs,
processes, formulae, software or computer programs, plans, devices or
material (whether or not patented or patentable, copyrighted or
copyrightable) directly or indirectly useful in any aspect of Company's
business, any confidential customer or supplier lists of the Company, any
confidential or secret development or research work of the Company, or any
other confidential, secret or nonpublic aspects of the business of the
Company.
5.2 Upon the request of the Company and without further compensation
therefor, but at no expense to CASEY, CASEY will provide reasonable
assistance, including but not limited to, the execution of papers and lawful
oaths and the giving of testimony, that in the opinion of RXI, its successors
and assigns, may be necessary or desirable (i) in obtaining, sustaining,
reissuing, extending and enforcing United States and foreign Letters Patents,
including, but not limited to , design patents, on any inventions or
trademark of RXI, (ii) for perfecting, affirming and recording RXI's complete
ownership and title of its assets, and (iii) in prosecuting or defending
litigation relating to matters as to which CASEY has knowledge, and CASEY
agrees otherwise to cooperate fully in all proceedings and matters relating
to the Company.
5.3 CASEY agrees that he shall not, during the period July 1,
1996 and through and including December 31, 1999 (the "Term"), engage in
competition with RXI Container within the States of Texas or Louisiana (the
"Territory") in any manner or capacity (e.g. as a management consultant,
principal, partner, officer, director, stockholder or management employee) in
any phase of RXI Container's business as presently being conducted. Ownership
by CASEY, as a passive investment, of less than 2% of the outstanding shares
of capital stock of any corporation listed on a national securities exchange
or publicly traded in the over-the-counter market shall not constitute a
breach of this Paragraph 5. Casey further agrees
-2-
<PAGE>
that he will not, assist or encourage any other person in carrying out,
any activity that would be prohibited by the above provisions of this
Paragraph 5 if such activity were carried out by CASEY, either, and in
particular CASEY agrees that he will not induce any employee of the
Company to carry out, any such activity.
5.4 CASEY agrees that, during the Term, he will not on his own behalf
or in the service or on behalf of others, solicit, divert or appropriate, or
attempt to solicit, divert or appropriate, to any competing business (i) any
person or entity whose account with the Company was sold or serviced by or
under the supervision of CASEY while employed by RXI or Texberry, or (ii) any
person or entity whose account with RXI Container (or its predecessor,
Texberry Container Corporation) has been directly solicited at least twice by
the Company within the eighteen (18) month period prior to the date hereof.
5.5 CASEY agrees that he will not, during the Term, on his own behalf
or in the service or on behalf of others solicit, divert or hire away, or
attempt to solicit, divert or hire away any person then employed by RXI
Container or then serving as a sales representative of RXI Container.
6. CASEY hereby releases. forever discharges, and agrees not to sue
RXI and/or its parents, divisions, subsidiaries, affiliates, and related
entitles, and its or their past, present, and future owners, trustees,
fiduciaries, administrators, agents, directors, officers, employees and
attorneys, and the predecessors, successors, and assigns of each of them (the
"RXI RELEASED PARTIES") from and for any and all claims (except claims
arising from this Agreement), demands, damages, debts, controversies,
liabilities, accounts, reckonings, obligations, costs, expenses, attorneys'
fees, actions, liens, and/or causes of action, whether known or unknown,
which CASEY now has, has ever had, or may have in the future against the RXI
RELEASED PARTIES based upon, arising out of, or concerning or pertaining to
or by virtue of any act, omission, matter, fact, occurrence, transaction,
thing, state of facts, claim, contention, statement, or event occurring or
existing at any time from the beginning of the world up to and including the
EFFECTIVE DATE of this Agreement, excluding, however, any claims arising
under this Agreement. Without limiting the generality of the foregoing, this
General Release applies to any and all claims which in any way relate to,
arise out of, or result from CASEY's employment with Texberry or RXI
including, but not limited to, any claims which could have been raised under
any state's Fair Employment and Housing Act, Title VII of the Civil Rights
Act of 1964 as amended, the American's with Disabilities Act (ADA), the Age
Discrimination in Employment Act (ADEA), and the Employees Retirement Income
Security Act (ERISA), or any other federal, state, or local law, regulation,
ordinance, or common law claim. However, the release in this paragraph
specifically excepts and does not apply to claims which are based upon,
relate to, arise out of fraud, willfull violations of law (except only those
statutes relating to employment, employment practices and employee benefit
plans, claims under which are waived in full), embezzlement, willful
misconduct or breach of fiduciary duty, all of which are expressly reserved.
CASEY represents that he is presently unaware of the existence of any such
excluded claims against any RXI Released Party.
7. RXI hereby releases, forever discharges, and agrees not to sue CASEY
from and for any claims (except for claims arising under this Agreement),
demands, damages,
-3-
<PAGE>
debts, controversies, liabilities, accounts, reckonings, obligations, costs,
expenses, attorneys' fees, actions, liens, and/or causes of action, whether
known or unknown, which RXI or RXI Holdings now has, has ever had, or may
have in the future against CASEY based upon, arising out of, or concerning or
pertaining to or by virtue of any act, omission, matter, fact, occurrence,
transaction, thing, state of facts, claim, contention, statement, or event
occurring or existing at any time from the beginning of the world up to and
including the EFFECTIVE DATE of this Agreement, excluding, however, any
claims arising under this Agreement. However, the release in this paragraph
specifically excepts and does not apply to any claims which are based upon,
relate to, or arise out of fraud, willful violation of law (except only those
statutes relating to employment, employment practices and employee benefit
plans, claims under which are waived in full), embezzlement, willful
misconduct, or breach of fiduciary duty, all of which are expressly reserved.
The person executing this document on behalf of RXI represents that he is
presently unaware of the existence of any such excluded claims against CASEY.
8. CASEY and RXI have each read and understood the following language
contained in Section 1542 of the California Civil Code:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXISTS IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Having reviewed this provision, CASEY and RXI nevertheless hereby voluntarily
waive the benefits of this provision and release each other from all
liability for unknown claims.
REPRESENTATIONS AND ACKNOWLEDGEMENTS
9. CASEY expressly warrants and represents that he has not transferred
or assigned to any other person, firm, corporation, or other legal entity any
claims, rights, or causes of action against the RXI RELEASED PARTIES, or any
of them.
10. CASEY hereby covenants and represents that he has not brought any
legal or administrative action against the RXI RELEASED PARTIES in connection
with or relating to his employment with RXI.
11. CASEY hereby acknowledges to RXI that no other party nor any agent
or attorney of any other party has made any promise, representation or
warranty whatsoever, express or implied, written or oral, not contained
herein concerning the subject matter hereof to induce CASEY to execute this
Agreement, and CASEY acknowledges that he has not executed this Agreement in
reliance on any promise, representation or warranty not contained herein.
12. The parties, and both of them, represent and warrant that they
have read this Agreement and fully understand and appreciate the terms of
this Agreement and their effect.
-4-
<PAGE>
MISCELLANEOUS TERMS
13. In compliance with the requirements of the Age Discrimination In
Employment Act as amended by the Older Workers' Benefit Protection Act of
1990, CASEY acknowledges by his signature below that he has read and
understands this Agreement and specifically understands the following:
a. That he may consult with an attorney before signing this Agreement
and that RXI advises him to do so;
b. That he is releasing RXI from, among other things, any claims
which he might have against it pursuant to the Age Discrimination In Employment
Act as amended;
c. That this Agreement does not cover the rights or claims that may
arise under the Age Discrimination In Employment Act after the date of
execution of this Agreement;
d. That he has been given by RXI a period of twenty-one (21) days in
which to consider this Agreement; and
e. That he may revoke this Agreement during the seven (7) day period
following the execution of this Agreement and that the agreed Agreement will
not be become binding and effective until the seven (7) day revocation period
has expired. In the event of any such revocation, CASEY shall repay any
amount paid CASEY under Paragraph 1 herein.
14. In the event that either of the parties must resort to legal
action in order to enforce any provision or right under this Agreement or to
defend such suit, the prevailing party shall be entitled to receive
reimbursement from the non-prevailing party or parties for all reasonable
attorneys' fees and costs incurred in the litigation of such suit.
15. This Agreement effects the settlement of potential claims and
nothing contained herein shall be construed as an admission by either party
hereto of any wrongdoing of any kind.
16. This Agreement constitutes the entire agreement and understanding
between the parties with respect to the subject matter hereof and all prior
negotiations, agreements, understandings, written or oral, between the
parties are deemed superseded and are replaced hereby. No provision may be
changed, waived or modified, except in writing, signed by the parties hereto.
-5-
<PAGE>
17. THIS AGREEMENT SHALL IN ALL RESPECTS BE INTERPRETED, ENFORCED, AND
GOVERNED BY AND UNDER THE LAWS OF THE STATE OF CALIFORNIA. ANY AND ALL CLAIMS
ARISING FROM OR IN CONNECTION WITH THIS AGREEMENT SHALL BE SUBJECT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF CALIFORNIA. THE LANGUAGE OF THIS
AGREEMENT SHALL BE CONSTRUED AS A WHOLE ACCORDING TO ITS FAIR MEANING, AND
NOT STRICTLY FOR OR AGAINST EITHER OF THE PARTIES HERETO.
/s/ HC INITIALS /s/ ML
------- --------
HC ML
18. CASEY and RXI agree that they will execute and deliver all such
further documents and instruments and shall carry out all such further acts as
may be reasonably necessary and appropriate to effectuate or implement the
terms hereof.
19. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof, nor shall
such waiver constitute a continuing waiver. The parties hereto may amend or
modify this Agreement only in such manner as may be agreed upon by written
instrument executed by all parties hereto.
20. This Agreement may be executed in parts or counterparts, and a
facsimile signature will have the same force and effect as an original
signature penned in ink. When each of the parties hereto has signed and
delivered at least one such counterpart, each counterpart shall be deemed an
original and when taken together with other signed counterparts, shall
constitute one fully executed Agreement which shall be binding upon and
effective as to all parties in accordance with the terms stated above.
IN WITNESS WHEREOF, now the parties hereto have caused this Agreement to
be executed as of the day and year indicated below.
Date: 7/12 , 1996 /s/ Harvey Casey
------ ---------------------------------------
HARVEY CASEY
7330 Greatwood Lake Drive
Sugarland, Texas 77479
Date: July 10, 1996 RXI PLASTICS, INC.
-------
By: /s/ Marvin Liebman
---------------------------------------
Marvin Liebman
Chief Financial Officer
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<PAGE>
Exhibit 10.32
PROMISSORY NOTE
$24,270,044.94 May 31, 1996
FOR VALUE RECEIVED, RXI Plastics, Inc., a Delaware corporation (the
"Company"), promises to pay to RXI Holdings, Inc., a Delaware corporation
("RXI") or order (each a "Holder") the principal sum of Twenty-Four Million
Two Hundred Seventy Thousand Forty-Four and 94/100 Dollars on January 31,
2002.
1. INTEREST. The Company promises to pay interest on the principal
amount of this Note at 14% per annum from the date of issuance until
maturity. The Company will pay interest semi-annually on January 31 and July
31 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Note will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance; provided that
the first Interest Payment Date shall be July 31, 1995. The Company shall
pay interest (including post-petition interest in any proceeding under
Bankruptcy Law) on overdue principal, from time to time on demand at a rate
that is 1% per annum in excess of the interest rate then in effect on this
Note; it shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on overdue installments of interest from
time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. This Note will be payable as to principal and
interest at the office or agency of the Holder maintained for such purpose
within the City and State of New York. Such payment will be in United States
dollars.
3. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
used herein shall have the meaning ascribed to them in the Indenture dated as
of February 10, 1995, 1995, among RXI, the Subsidiary Guarantors executing
the Indenture and United States Trust Company of California, as Trustee,
except that "Senior Notes" as used herein shall have the meaning ascribed to
"Notes" in the Indenture.
4. AMENDMENT, SUPPLEMENT AND WAIVER. In the event the Indenture or the
Senior Notes are amended or supplemented and such amendments or supplements
become effective in accordance with Article Nine of the Indenture, the terms
of this Note shall be deemed automatically amended or supplemented, without
the consent of Company or any other action by Holder, to the extent necessary
to conform the terms contained herein to the terms of the Indenture and Senior
Notes as so amended or supplemented.
5. OPTIONAL PAYMENT. This Note may be prepaid in whole or in part at
any time without penalty or premium.
6. MANDATORY PAYMENT. In the event RXI elects to, or is required to,
redeem or repurchase any portion of the Senior Notes as permitted by or
required by the Indenture, RXI may, without the consent of the Company,
declare a corresponding portion of the principal
<PAGE>
amount of this Note to be due and payable immediately, plus accrued and
unpaid interest, if any, to the date of such redemption or repurchase.
7. ACCELERATION. If (i) a default occurs in any payment to be made by
Company under this Note, or (ii) any indebtedness of Company to other lenders
or creditors has become due prior to the stated maturity thereof because of a
default by Company under the terms governing such indebtedness, or (iii) the
Company shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against Company seeking to adjudicate Company as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection or relief, or composition of it or its debt under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property, then, at any time thereafter during the continuance of
any such event of default, at Holder's election and with immediate effect
upon written notice to Company, this Note shall become immediately due and
payable, plus accrued and unpaid interest, without presentment, demand,
protest or notice of any other kind, all of which are expressly waived.
Without limiting the foregoing, upon acceleration of the Senior Notes by
declaration or otherwise as provided in Article Six of the Indenture this
Note shall IPSO FACTO become immediately due and payable without any
declaration, notice or other act on the part of the Holder, provided that
upon rescission of such acceleration of the Senior Notes in accordance with
Article Six of the Indenture the acceleration of this Note and consequences
hereunder shall IPSO FACTO be rescinded.
8. BORROWER WAIVERS. Company, for itself and its successors and
assigns, hereby waives, to the extent such waiver is not prohibited by
applicable law; (i) all presentments, demands for performance, notice of
nonperformance (except to the extent required by the provisions hereof),
protests, notices of protest and notices of dishonor; (ii) any requirement of
diligence or promptness on the part of Holder in the enforcement of its
rights under this Note; and (iii) any and all notices of every kind and
description which may be required to be given by any statute or rule of law.
9. NOTICES. All notices, requests, consents and demands relating to
this Note shall be given in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight courier at the respective addresses as have been or
may be furnished from time to time by the parties hereto.
10. GOVERNING LAW. This Note is to be construed in accordance with and
governed by the laws of the State of New York.
11. NO WAIVER: REMEDIES. No failure on the part of Holder to exercise
and no delay in exercising any right in connection with this Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided hereunder are cumulative and not
exclusive of any remedies provided by law.
-2-
<PAGE>
12. COLLECTION COSTS: ATTORNEYS' FEES. Company shall reimburse Holder
on demand for all costs incurred by Holder for collection costs for payments
hereunder that have become delinquent, whether or not suit is filed thereon.
In any action or proceeding brought to enforce any rights or obligations
under this Note, the prevailing party shall be entitled to receive
reimbursement for its reasonable attorneys' fees and expenses and court costs.
13. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure
to the benefit of the parties hereto and the respective successors and
assigns.
14. SEVERABILITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
RXI PLASTICS, INC.
By: /s/Leon Farahnik
------------------------------------
LEON FARAHNIK, Chairman
By: /s/Marvin Liebman
------------------------------------
MARVIN LIEBMAN, Chief Financial
Officer
Pay to the Order of:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
as Collateral Agent
RXI HOLDINGS, INC.
By: /s/Leon Farahnik
-------------------------------
Leon Farahnik, President
-3-
<PAGE>
Exhibit 10.33
PROMISSORY NOTE
$15,689,495.72 May 31, 1996
FOR VALUE RECEIVED, RXI Plastics, Inc., a Delaware corporation (the
"Company"), promises to pay to RXI Holdings, Inc., a Delaware corporation
("RXI") or order (each a "Holder") the principal sum of Fifteen Million Six
Hundred Eighty-Nine Thousand Four Hundred Ninety-Five and 72/100 Dollars on
January 31, 2002.
1. INTEREST. The Company promises to pay interest on the principal
amount of this Note at 14% per annum from the date of issuance until
maturity. The Company will pay interest semi-annually on January 31 and July
31 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Note will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance; provided that
the first Interest Payment Date shall be July 31, 1995. The Company shall
pay interest (including post-petition interest in any proceeding under
Bankruptcy Law) on overdue principal, from time to time on demand at a rate
that is 1% per annum in excess of the interest rate then in effect on this
Note; it shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on overdue installments of interest from
time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. This Note will be payable as to principal and
interest at the office or agency of the Holder maintained for such purpose
within the City and State of New York. Such payment will be in United States
dollars.
3. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
used herein shall have the meaning ascribed to them in the Indenture dated as
of February 10, 1995, 1995, among RXI, the Subsidiary Guarantors executing
the Indenture and United States Trust Company of California, as Trustee,
except that "Senior Notes" as used herein shall have the meaning ascribed to
"Notes" in the Indenture.
4. AMENDMENT, SUPPLEMENT AND WAIVER. In the event the Indenture or the
Senior Notes are amended or supplemented and such amendments or supplements
become effective in accordance with Article Nine of the Indenture, the terms
of this Note shall be deemed automatically amended or supplemented, without
the consent of Company or any other action by Holder, to the extent necessary
to conform the terms contained herein to the terms of the Indenture and Senior
Notes as so amended or supplemented.
5. OPTIONAL PAYMENT. This Note may be prepaid in whole or in part at
any time without penalty or premium.
6. MANDATORY PAYMENT. In the event RXI elects to, or is required to,
redeem or repurchase any portion of the Senior Notes as permitted by or
required by the Indenture, RXI may, without the consent of the Company,
declare a corresponding portion of the principal
<PAGE>
amount of this Note to be due and payable immediately, plus accrued and
unpaid interest, if any, to the date of such redemption or repurchase.
7. ACCELERATION. If (i) a default occurs in any payment to be made by
Company under this Note, or (ii) any indebtedness of Company to other lenders
or creditors has become due prior to the stated maturity thereof because of a
default by Company under the terms governing such indebtedness, or (iii) the
Company shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against Company seeking to adjudicate Company as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection or relief, or composition of it or its debt under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property, then, at any time thereafter during the continuance of
any such event of default, at Holder's election and with immediate effect
upon written notice to Company, this Note shall become immediately due and
payable, plus accrued and unpaid interest, without presentment, demand,
protest or notice of any other kind, all of which are expressly waived.
Without limiting the foregoing, upon acceleration of the Senior Notes by
declaration or otherwise as provided in Article Six of the Indenture this
Note shall IPSO FACTO become immediately due and payable without any
declaration, notice or other act on the part of the Holder, provided that
upon rescission of such acceleration of the Senior Notes in accordance with
Article Six of the Indenture the acceleration of this Note and consequences
hereunder shall IPSO FACTO be rescinded.
8. BORROWER WAIVERS. Company, for itself and its successors and
assigns, hereby waives, to the extent such waiver is not prohibited by
applicable law: (i) all presentments, demands for performance, notice of
nonperformance (except to the extent required by the provisions hereof),
protests, notices of protest and notices of dishonor; (ii) any requirement of
diligence or promptness on the part of Holder in the enforcement of its
rights under this Note; and (iii) any and all notices of every kind and
description which may be required to be given by any statute or rule of law.
9. NOTICES. All notices, requests, consents and demands relating to
this Note shall be given in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight courier at the respective addresses as have been or
may be furnished from time to time by the parties hereto.
10. GOVERNING LAW. This Note is to be construed in accordance with and
governed by the laws of the State of New York.
11. NO WAIVER: REMEDIES. No failure on the part of Holder to exercise
and no delay in exercising any right in connection with this Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided hereunder are cumulative and not
exclusive of any remedies provided by law.
-2-
<PAGE>
12. COLLECTION COSTS: ATTORNEYS' FEES. Company shall reimburse Holder
on demand for all costs incurred by Holder for collection costs for payments
hereunder that have become delinquent, whether or not suit is filed thereon.
In any action or proceeding brought to enforce any rights or obligations
under this Note, the prevailing party shall be entitled to receive
reimbursement for its reasonable attorneys' fees and expenses and court costs.
13. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure
to the benefit of the parties hereto and the respective successors and
assigns.
14. SEVERABILITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
RXI PLASTICS, INC.
By: /s/Leon Farahnik
------------------------------------
LEON FARAHNIK, Chairman
By: /s/Marvin Liebman
------------------------------------
MARVIN LIEBMAN, Chief Financial
Officer
Pay to the Order of:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
as Collateral Agent
RXI HOLDINGS, INC.
By: /s/Leon Farahnik
-------------------------------
Leon Farahnik, President
-3-
<PAGE>
Exhibit 10.34
PROMISSORY NOTE
$13,911,379.91 May 31, 1996
FOR VALUE RECEIVED, RXI Plastics, Inc., a Delaware corporation (the
"Company"), promises to pay to RXI Holdings, Inc., a Delaware corporation
("RXI") or order (each a "Holder") the principal sum of Thirteen Million Nine
Hundred Eleven Thousand Three Hundred Seventy-Nine and 91/100 Dollars on
January 31, 2002.
1. INTEREST. The Company promises to pay interest on the principal
amount of this Note at 14% per annum from the date of issuance until
maturity. The Company will pay interest semi-annually on January 31 and July
31 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the
Note will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of issuance; provided that
the first Interest Payment Date shall be July 31, 1995. The Company shall
pay interest (including post-petition interest in any proceeding under
Bankruptcy Law) on overdue principal, from time to time on demand at a rate
that is 1% per annum in excess of the interest rate then in effect on this
Note; it shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on overdue installments of interest from
time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. This Note will be payable as to principal and
interest at the office or agency of the Holder maintained for such purpose
within the City and State of New York. Such payment will be in United States
dollars.
3. DEFINITIONS. Unless otherwise defined herein, all capitalized terms
used herein shall have the meaning ascribed to them in the Indenture dated as
of February 10, 1995, 1995, among RXI, the Subsidiary Guarantors executing
the Indenture and United States Trust Company of California, as Trustee,
except that "Senior Notes" as used herein shall have the meaning ascribed to
"Notes" in the Indenture.
4. AMENDMENT, SUPPLEMENT AND WAIVER. In the event the Indenture or the
Senior Notes are amended or supplemented and such amendments or supplements
become effective in accordance with Article Nine of the Indenture, the terms
of this Note shall be deemed automatically amended or supplemented, without
the consent of Company or any other action by Holder, to the extent necessary
to conform the terms contained herein to the terms of the Indenture and Senior
Notes as so amended or supplemented.
5. OPTIONAL PAYMENT. This Note may be prepaid in whole or in part at
any time without penalty or premium.
6. MANDATORY PAYMENT. In the event RXI elects to, or is required to,
redeem or repurchase any portion of the Senior Notes as permitted by or
required by the Indenture, RXI may, without the consent of the Company,
declare a corresponding portion of the principal
<PAGE>
amount of this Note to be due and payable immediately, plus accrued and
unpaid interest, if any, to the date of such redemption or repurchase.
7. ACCELERATION. If (i) a default occurs in any payment to be made by
Company under this Note, or (ii) any indebtedness of Company to other lenders
or creditors has become due prior to the stated maturity thereof because of a
default by Company under the terms governing such indebtedness, or (iii) the
Company shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against Company seeking to adjudicate Company as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection or relief, or composition of it or its debt under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property, then, at any time thereafter during the continuance of
any such event of default, at Holder's election and with immediate effect
upon written notice to Company, this Note shall become immediately due and
payable, plus accrued and unpaid interest, without presentment, demand,
protest or notice of any other kind, all of which are expressly waived.
Without limiting the foregoing, upon acceleration of the Senior Notes by
declaration or otherwise as provided in Article Six of the Indenture this
Note shall IPSO FACTO become immediately due and payable without any
declaration, notice or other act on the part of the Holder, provided that
upon rescission of such acceleration of the Senior Notes in accordance with
Article Six of the Indenture the acceleration of this Note and consequences
hereunder shall IPSO FACTO be rescinded.
8. BORROWER WAIVERS. Company, for itself and its successors and
assigns, hereby waives, to the extent such waiver is not prohibited by
applicable law: (i) all presentments, demands for performance, notice of
nonperformance (except to the extent required by the provisions hereof),
protests, notices of protest and notices of dishonor; (ii) any requirement of
diligence or promptness on the part of Holder in the enforcement of its
rights under this Note; and (iii) any and all notices of every kind and
description which may be required to be given by any statute or rule of law.
9. NOTICES. All notices, requests, consents and demands relating to
this Note shall be given in writing and delivered in person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight courier at the respective addresses as have been or
may be furnished from time to time by the parties hereto.
10. GOVERNING LAW. This Note is to be construed in accordance with and
governed by the laws of the State of New York.
11. NO WAIVER: REMEDIES. No failure on the part of Holder to exercise
and no delay in exercising any right in connection with this Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided hereunder are cumulative and not
exclusive of any remedies provided by law.
-2-
<PAGE>
12. COLLECTION COSTS: ATTORNEYS' FEES. Company shall reimburse Holder
on demand for all costs incurred by Holder for collection costs for payments
hereunder that have become delinquent, whether or not suit is filed thereon.
In any action or proceeding brought to enforce any rights or obligations
under this Note, the prevailing party shall be entitled to receive
reimbursement for its reasonable attorneys' fees and expenses and court costs.
13. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure
to the benefit of the parties hereto and the respective successors and
assigns.
14. SEVERABILITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
RXI PLASTICS, INC.
By: /s/Leon Farahnik
------------------------------------
LEON FARAHNIK, Chairman
By: /s/Marvin Liebman
------------------------------------
MARVIN LIEBMAN, Chief Financial
Officer
Pay to the Order of:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
as Collateral Agent
RXI HOLDINGS, INC.
By: /s/Leon Farahnik
-------------------------------
Leon Farahnik, President
-3-
<PAGE>
EXHIBIT 12.01
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
<S> <C> <C>
Earnings Before Taxes $(11,575,352)
==========
FIXED CHARGES:
Interest Expense $ 9,812,130
Amortization of Deferred Loan Costs 849,808
Rental Expense year ended June 30, 1996 $1,499,029
Divided By: 3 3
499,676
Total Fixed Charges 11,161,614
==========
Earnings $ (413,738)
Ratio of Earnings to Fixed Charges (0.04)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 24,045
<SECURITIES> 0
<RECEIVABLES> 9,034,093
<ALLOWANCES> 0
<INVENTORY> 8,965,018
<CURRENT-ASSETS> 19,609,037
<PP&E> 38,780,884
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,914,268
<CURRENT-LIABILITIES> 22,575,222
<BONDS> 66,620,558
0
14,429
<COMMON> 2,500
<OTHER-SE> 14,824,689
<TOTAL-LIABILITY-AND-EQUITY> 87,914,268
<SALES> 93,962,979
<TOTAL-REVENUES> 93,962,979
<CGS> 77,767,709
<TOTAL-COSTS> 74,767,709
<OTHER-EXPENSES> 17,725,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,661,938
<INCOME-PRETAX> (11,575,352)
<INCOME-TAX> (1,597,755)
<INCOME-CONTINUING> (9,977,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,977,597)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
